TIDMELTA
RNS Number : 1600G
Electra Private Equity PLC
25 May 2017
Embargoed until 07:00am, Thursday 25 May 2017
Electra Private Equity PLC
Unaudited Results for the Six Months ended 31 March 2017
The information contained in this announcement is restricted and
is not for release, publication or distribution, directly or
indirectly, nor does it constitute an offer of securities for sale,
in the United States, Canada, Japan, Australia, New Zealand or
South Africa. References in this announcement to Electra Private
Equity PLC and its subsidiaries have been abbreviated to 'Electra'
or the 'Company' or the 'Group'. References to Epiris Managers LLP
(formerly Electra Partners LLP) have been abbreviated to 'Epiris'
or 'the Manager'.
Highlights for the six months to 31 March 2017
-- Continued strong performance: NAV per share of 5,544p, a
total return of 10% for the six-month period and 30% over the last
twelve months
-- Share price of 4,951p, a total return of 18% for the period,
compared with 8% for the FTSE All-Share Index
-- Investment return of GBP246 million, or 15% on the opening
portfolio for the six months (GBP698 million or 41% for the last
twelve months)
-- Largest individual gains: Audiotonix (GBP62 million),
Treetops (GBP45 million), AXIO (GBP44 million), TGI Fridays (GBP30
million), Innovia (GBP28 million), Parkdean Resorts (GBP26 million)
and Hotter (GBP12 million)
-- 11 transactions during the period including 2 add-ons to
existing portfolio companies and 9 realisations
-- GBP1,067 million realised (63% of opening investment portfolio)
-- NAV per share total return of 230% over ten years, equivalent
to a ten-year annualised return of 13%, in the upper part of the
long-term target of 10-15%
-- Share price total return of 237% over ten years, compared
with 74% for the FTSE All-Share Index
Subsequent to 31 March 2017
-- A further GBP442 million of realisations completed,
including: CALA & Retirement Bridge (GBP94 million), Treetops
(GBP94 million), AXIO (GBP78 million), PINE (GBP50 million) and EP1
Secondary Portfolio
(GBP42 million)
-- An additional GBP26 million of realisations announced from AXIO
-- Special dividend of GBP1.0 billion (2,612p per share) paid on 5 May 2017
-- Updated unaudited NAV of GBP1,120 million at 19 May 2017
(adjusted to reflect purchases and sales of investments, currency
movements and bid values on that day in respect of listed
investments)
-- Expected cash at 31 May 2017 of approximately GBP740 million
Dividend
-- Second Special dividend of GBP350 million (914p per share)
declared, payable on 14 July to shareholders on the register on 9
June
Commenting, Neil Johnson, Chairman of Electra Private Equity,
said:
"Since my full year 2016 statement we have continued to make
excellent progress in optimising shareholder value in our current
structure and are now ready for the management transition from
external to internal management from 1 June.
"We are looking forward to the commencement of the second phase
of the strategic review in June, when the executive management team
will have direct access to the portfolio companies' management
teams and financial information for the first time. The results of
the second phase of the review will be announced in the fourth
quarter of 2017.
"We also continue our policy of improved capital allocation by
returning over GBP1.1 billion to shareholders since 1 October 2016
with a further GBP350 million announced with our interim
results."
Alex Fortescue, Managing Partner of Epiris, said:
"It has been another period of strong investment performance,
with an investment return of 15% for the last six months and 41%
for the last twelve months.
"We have delivered a record level of realisations as the
strategies we have implemented across the portfolio have come to
fruition. Businesses such as Audiotonix, AXIO, Parkdean Resorts and
Treetops have been fundamentally transformed in terms of both
performance and scale through our management. As a result these
four investments together have produced a return of 4.6x cost and a
profit of GBP1 billion.
"We are extremely proud that under our management Electra has
been the best-performing London-listed private equity investment
trust over the past ten years. As we look to the future, we have an
exceptional investment team and a top-decile track record earned by
implementing a differentiated strategy. We wish Electra the very
best as it completes its strategic review."
For further information:
For Electra Private Equity PLC:
Gavin Manson, Chief Financial Officer 020 3874 8300
Rowan Brown or Miranda Ward, Brunswick Group 020 7404 5959
For Epiris:
Andrew Honnor, Matthew Goodman, Matthieu Roussellier, Greenbrook Communications 020 7952 2000
Nicholas Board or Andrew Kenny, Epiris 020 7306 3902
Performance Summary
Unless otherwise stated all information is at 31 March 2017 and
is unaudited.
At 31 March 2017 the net asset value ("NAV") per share was
5,544p. At 19 May 2017 the unaudited NAV per share was 2,926p. The
decrease from 31 March 2017 reflects the payment of a Special
Dividend on 5 May 2017 (2,612p per share).
Performance (Total Return):
Six months One Three Five Ten
year years years years
---------------- ----------- ------ ------- ------- -------
NAV per share
Electra 10% 30% 102% 150% 230%
Morningstar
PE Index * 5% 22% 57% 85% 26%
---------------- ----------- ------ ------- ------- -------
Share price
Electra 18% 48% 103% 209% 237%
Morningstar
PE Index * 15% 55% 75% 167% 14%
FTSE All-Share
Index 8% 22% 25% 59% 74%
FTSE 250 Index 7% 15% 26% 88% 114%
---------------- ----------- ------ ------- ------- -------
Performance calculated on a total return basis with dividends
reinvested.
* The above index, prepared by Morningstar UK Limited, reflects
the performance of 21 private equity vehicles, excluding Electra,
listed on the London Stock Exchange.
NAV per share vs. Share price vs. FTSE All-Share (Total
Return)
As at 31 Electra NAV Electra FTSE All-Share
March per share share price Index
---------- ------------ ------------- ---------------
2007 100 100 100
2008 107 96 92
2009 85 37 65
2010 106 86 99
2011 123 106 108
2012 132 109 109
2013 150 150 128
2014 163 165 139
2015 198 200 148
2016 254 227 142
2017 330 337 174
---------- ------------ ------------- ---------------
Note: 31 March 2007 equals 100.
Historic NAV, Share price, Dividends and Return on Equity
10-year
Ordinary Dividends annualised
Total NAV share per return
Year ended NAV per share price share on equity
31 March GBPm p p p %
1998 1,250 736 603 11.18 14
1999 1,440 832 714 - 12
2000 1,210 1,165 1,093 - 15
2001 774 962 908 - 13
2002 575 881 637 - 14
2003 458 702 500 - 10
2004 549 843 739 - 10
2005 469 1,054 935 - 12
2006 577 1,417 1,304 20.00 13
2007 679 1,811 1,603 17.00 13
2008 680 1,910 1,586 25.00 11
2009 534 1,512 578 - 7
2010 671 1,900 1,349 - 5
2011 809 2,193 1,664 - 9
2012 876 2,360 1,718 - 11
2013 999 2,684 2,365 - 15
2014 1,088 2,914 2,609 - 14
2015 1,350 3,548 3,160 - 13
2016 1,774 4,405 3,465 116.00 13
2017 2,123 5,544 4,951 154.00 13
------------ ------ ----------- --------- ---------- ------------
Please note:
The issue of the Convertible Bonds in December 2010 required the
Company to report a diluted NAV per share from the date of issue to
the date of final conversion in December 2015 (affecting the year
ends from 2011 to 2015).
Financial Highlights as at 31 March 2017
Total portfolio return of 15% in the six months
GBP246 million
Investment portfolio equivalent to 41% of net assets
GBP879 million
NAV per share total return of 10% for the six months
5,544p
NAV per share, including dividends, total return over ten
years
230%
Annualised return on equity over ten years
13%
Share price total return of 18% in the six months
4,951p
Share price total return over ten years
237%
Second Special dividend declared
GBP350 million
The Half Year Report for the six months ended 31 March 2017 will
be available on the Company's website www.electraequity.com.
Neither the contents of this website nor the contents of any
website accessible from hyperlinks on this website (or any other
website) is incorporated into, or forms part of this
announcement.
About Electra Private Equity PLC
Electra Private Equity PLC ("Electra" or the "Company") is a
private equity investment trust which has been listed on the London
Stock Exchange since 1976. As at 31 March 2017 its net assets were
GBP2.1 billion or 5,544p per share.
Electra's objective is to achieve a return on equity of between
10% and 15% per year over the long term by investing in a portfolio
of private equity assets.
Performance is in line with this objective: for the 10 years to
31 March 2017 Electra's return on equity was 13% per year.
Electra's performance has been consistently superior to that of the
Morningstar Private Equity Index and the FTSE All-Share Index.
On 25 January 2016 the Board of Electra announced that it was
reviewing the Company's investment strategy and policy and its
structure. On 26 May 2016 the Board provided an interim update on
this review in which it announced that it had decided to establish
an executive function and served twelve months' notice of
termination of the contracts under which management of its
operations and investments is outsourced to Epiris. On 14 October
2016 the Board announced the outcome of the first phase of the
review, including its intention to internalise all management
functions and to migrate the Company from an investment trust
structure to a "corporate" structure; and its intention to commence
the second phase of the review in June 2017. On 31 May 2017 Epiris
will cease to manage Electra's business and affairs.
Chairman's Statement
"Since my full year 2016 statement we have continued to make
excellent progress on optimising shareholder value in our current
structure and are now ready for the management transition from
external to internal management from 1 June.
"We are looking forward to the commencement of the second phase
of the strategic review in June, when the executive management team
will have direct access to the portfolio companies' management
teams and financial information for the first time. The results of
the second phase of the review will be announced in the fourth
quarter of 2017.
"We also continue our policy of improved capital allocation by
returning over GBP1.1 billion to shareholders since 1 October 2016
with a further GBP350 million announced with our interim
results."
Overview
The Company has continued to perform well in its activities as a
listed private equity investment trust. Total return to
shareholders over the six months to 31 March 2017 was 18%
reflecting the increase in share price together with dividends
paid. Further details of this are provided in the Manager's
Report.
In October the Board published the findings of Phase I of its
strategic review, which set out its recommendations to maximise
long-term shareholder value through proposed changes to the
Company's investment strategy, policy and structure. In October,
and set out in detail in the 30 September 2016 Annual Report, the
Board confirmed its intention to continue the termination of the
Management and Investment Guideline Agreement ("MIG") with Epiris,
and assume control of the Company's affairs from 1 June 2017. The
Company also expressed its intention, subject to shareholder
approval, to cease to be a closed-end investment trust and migrate
to a consolidated corporate structure.
Phase II of the review will conclude on the recommendation to
shareholders on conversion to a consolidated corporate structure
will define future capital allocation policy and will include a
review of the investment portfolio as at June 2017. The Board
anticipates announcing its findings in the fourth quarter of 2017
and shareholder approval will be sought, as required, prior to
implementation.
Investment Policy and Activity
The Company continues to follow its published Investment Policy.
The combination of market conditions and the forthcoming change of
manager have resulted in significant net divestment in the
period.
Realisations in the first half included the exits from Parkdean
Resorts, Innovia Group, Davies Group, Audiotonix and Allflex
Corporation, as well as partial realisations of Premier Asset
Management and several AXIO Group companies.
Post period end, Electra announced further exits from Treetops
Nurseries, CALA Group and Retirement Bridge Group as well as the
sale of its remaining stake in Hollywood Bowl and Premier Asset
Management and the disposal of the final AXIO Group companies, RISI
and Techinsights. Further details of these and other realisations
are also given in the Manager's Report.
This net divestment resulted in the generation of significant
cash balances. As part of its capital allocation policy, the Board
returned excess funds to shareholders through a tender offer
returning GBP92 million to shareholders in December and on 24 March
2017 the Board also announced a Special Dividend of GBP1.0 billion,
representing 2,612p per share. This was paid to shareholders on 5
May 2017.
Dividend
Immediately after payment of the Special Dividend on 5 May the
Company had cash balances of approximately GBP675 million. Expected
cash at 31 May 2017 will be approximately GBP740 million. The
Directors are therefore pleased to announce a Second Special
dividend of GBP350 million payable to shareholders on the register
at 9 June and payable on 14 July.
No routine interim dividend will be paid.
Board changes and company structure
The Company continued to strengthen its team in preparation for
its transition to a corporate structure and I was pleased to
welcome Linda Wilding and Dr John McAdam to the Board. Linda
Wilding was appointed as a non-Executive Director with effect from
1 December 2016 and Dr McAdam joined on 1 January 2017 as Senior
Independent Director.
Alongside these appointments, shareholders voted overwhelmingly
in support of the Company's new Remuneration Policy at Electra's
AGM on 23 March. The Policy is designed to ensure Electra is able
to attract, reward and retain high calibre candidates for the newly
created roles across all operating functions. We are confident that
it represents full alignment with the long-term creation of value
to shareholders as well as being in line with best practice in the
industry.
The approved changes also permitted remunerated executives to be
appointed to the Board and I am delighted to report that Gavin
Manson, Group CFO, joined the Board at that time.
Outlook
The Directors are looking forward to the commencement of the
second phase of the strategic review in June, when the executive
management team will have direct access to the portfolio companies'
management teams and financial information for the first time. The
Company's executive management team is appropriately equipped and
ready to begin work from this time. It looks forward to working
with the portfolio company teams as Phase II progresses.
The expectation is that Phase II will complete in Q4 2017. The
Company will continue as a listed Private Equity Investment Trust
until such time as actions identified as part of Phase II of the
review are implemented following shareholder approval.
I am pleased to say that from 1 June 2017, the Company has
appointed G10 Capital, part of Lawson Conner Group, to serve as the
Company's AIFM, responsible for ensuring compliance with the AIFM
Directive.
On behalf of the whole Board and executive management team, I
thank Epiris for their service on behalf of the Company for many
years. I wish the team all the best for the future.
Neil Johnson
Chairman
24 May 2017
The Manager's Report
About Epiris
Epiris is an independent, top-decile private equity fund
manager*.
Together with its predecessor firms, Epiris has managed the
business and affairs of Electra for four decades. It has also
managed private equity investment programmes for pension funds,
financial institutions and family offices. During this time, the
Epiris team has invested in excess of GBP5 billion in more than 200
deals. This track record of investing through numerous economic
cycles gives Epiris both broad and deep experience across sectors,
geographies and business models.
Since 2011, Epiris has invested GBP1 billion in buyouts and
co-investments and loan-to-own debt investments, in respect of
which it has delivered a gross IRR of 38%**.
On 31 May 2017 Epiris will cease to manage Electra's business
and affairs.
For further information please visit www.epiris.co.uk.
* Refers to the 2009 and 2012 investment pools comprising Buyout
& Co-investment, Secondary and Debt investments managed on
behalf of Electra Private Equity PLC; comparator data supplied by
Preqin.
** As at 31 March 2017 adjusted for subsequent investments and
realisations. Gross IRR does not reflect adjustments for investment
management and administration costs. Past performance is no
guarantee of future results.
Superior Performance
Over the last ten years Electra, which is managed on an
exclusive and fully discretionary basis by Epiris, has seen a NAV
per share total return of 230%. This is almost nine times the NAV
per share return of the Morningstar Private Equity Index and is
equivalent to a ten-year annualised return of 13%, in the upper
part of Electra's target range of 10-15% over the long-term.
The Epiris team has delivered investment performance in the top
decile since 2009 when compared with other private equity funds
investing in Europe using data supplied by Preqin, a leading source
of data and intelligence for the alternative assets industry.
2006 fund
Performance ranking: Top 30%
Amount invested: GBP436 million
Distributions to Paid-In capital ("DPI"): 1.6x
Total Value to Paid-In capital ("TVPI"): 1.6x
Net IRR: 11.1%
Preqin 75(th) percentile net IRR: 11.4%
2009 fund
Performance ranking: Top decile
Amount invested: GBP359 million
Distributions to Paid-In capital ("DPI"): 2.0x
Total Value to Paid-In capital ("TVPI"): 2.1x
Net IRR: 24.6%
Preqin 75(th) percentile net IRR: 16.0%
2012 fund
Performance ranking: Top decile
Amount invested: GBP785 million
Distributions to Paid-In capital ("DPI"): 1.6x
Total Value to Paid-In capital ("TVPI"): 2.0x
Net IRR: 32.4%
Preqin 75(th) percentile net IRR: 19.4%
In the performance analysis above, Electra's investments since
the current investment strategy was adopted in 2006 are grouped
into discrete funds. Each fund includes the new Buyouts and
Co-investments, Secondaries and Debt investments made over a given
three-year period and thus is comparable to the private equity
funds whose data is provided by Preqin. This approach also mirrors
the treatment of Electra's investments for the purposes of the
carried interest schemes which are described on pages 42 to 44.
Note:
DPI, TVPI and IRR are standardised measures widely used in
private equity to calculate and present investment performance. All
three measures are described in greater detail in the Glossary on
pages 54 to 57.
Investment Team
Epiris' senior management team is one of the most experienced
teams in the industry and has on average 23 years' experience in
private equity. The investment team has an average of 18 years'
experience in private equity and is supported by a team of
specialists in compliance, finance, investor relations and
marketing.
Years' private equity
experience
------------------- ---------------------- ----------------------
Alex Fortescue Managing Partner 24
Chief Investment
Bill Priestley Partner 20
Alex Cooper-Evans Partner 24
Charles
Elkington Partner 23
Chris Hanna Partner 19
Steve Ozin Partner 27
Owen Wilson Investment Director 20
Ian Wood Investment Director 15
Nicola
Gray Investment Manager 9
Arvind
Tewari Investment Manager 7
Daniel
Frazer Investment Associate 3
------------------- ---------------------- ----------------------
For more information about Epiris please visit
www.epiris.co.uk.
Investment Highlights
"It has been another period of strong investment performance,
with an investment return of 15% for the last six months and 41%
for the last twelve months.
"We have delivered a record level of realisations as the
strategies we have implemented across the portfolio have come to
fruition. Businesses such as Audiotonix, AXIO, Parkdean Resorts and
Treetops have been fundamentally transformed in terms of both
performance and scale through our management. As a result these
four investments together have produced a return of 4.6x cost and a
profit of GBP1 billion.
"We are extremely proud that under our management Electra has
been the best-performing London-listed private equity investment
trust over the past ten years. As we look to the future, we have an
exceptional investment team and a top-decile track record earned by
implementing a differentiated strategy. We wish Electra the very
best as it completes its strategic review."
Overview
The period since 30 September 2016, the last period for which we
will report on performance, has again been a busy and extremely
successful one. The result is another strong investment
performance, with the return on the Buyouts and Co-investments
portfolio reaching 18% for the six months and 47% for the last
twelve months, and a record level of realisations as the strategies
we have implemented in the underlying companies have come to
fruition.
At the root of this success is our investment strategy. This
starts with achieving value on entry by focusing on complex
situations where we can buy well. The businesses we buy have scope
for transformation through add-on acquisitions and operational
improvement. We thereby improve operating performance and organic
growth whilst achieving step changes in scale through M&A. By
repositioning the businesses we buy, and by simplifying complexity,
we drive multiple expansion such that we are able to sell for
higher multiples of profit than we have bought.
This strategy has continued to drive performance and
realisations. Total realisations in the period reached GBP1,067
million, a record for Electra in any six-month period. Transactions
announced and completed since the end of March increase this total
to GBP1,535 million. Over two thirds of this amount was accounted
for by Audiotonix, AXIO, Parkdean Resorts and Treetops, all of
which have been fundamentally transformed in terms of both
performance and scale through Epiris' management. Further detail on
these investments is included on pages 15 to 19.
As new investment activity has been curtailed by the notice of
termination of our management agreement by Electra in May 2016, the
result of the high level of realisations has been an increase in
Electra's cash holdings. This trend started in the second half of
2016 and cash at the end of September was equivalent to 32% of
Electra's NAV, increasing to 65% of NAV by the end of March.
Despite this, the NAV per share total return was 10% for the six
months, and 30% for the twelve months, to March.
Performance in the period
Over the six months, Electra's share price total return was 18%
compared to a total return of 8% for the FTSE All-Share Index, 7%
for the FTSE 250 Index and 15% for the Morningstar Private Equity
Index over the same period.
Electra's Net Asset Value ("NAV") per share has grown strongly,
delivering a total return of 10% in the six months and 30% in the
twelve months, to 5,544p, compared to 5% and 22% respectively for
the NAV per share total return of the Morningstar Private Equity
Index.
Long-Term Performance
Over the last ten years, Electra's NAV per share total return
has been 230%. This is almost nine times the NAV per share total
return achieved over the same period by the Morningstar Private
Equity Index of 26%.
Over the same period, Electra's share price total return was
237%. This corresponds favourably to the total return over the same
period of the FTSE All-Share (74%), the FTSE 250 Index (114%) and
the Morningstar Private Equity Index (14%).
Risk-Adjusted Returns
Electra's "alpha" compared to the FTSE All-Share over the past
ten years is 10% per annum. This is the outperformance of Electra's
shares over the broader UK equity market on a risk-adjusted basis.
In our view this reflects a number of factors: our discipline and
patience in investment decision-making; our typically using less
leverage than is generally seen in private equity transactions and,
in cases such as Park Resorts or AXIO, no leverage at all; and our
deliberate construction of a portfolio designed to deliver
Electra's long-term performance target.
Outlook
As we promised in December, we have continued to manage
Electra's portfolio to optimise returns for Electra and its
shareholders. In many cases this has resulted in a realisation, and
in the past twelve months we have delivered six exits producing a
money multiple of 3x or more.
For Epiris, the future is bright. We have an outstanding team
and a top-decile track record earned by implementing a
differentiated strategy. We look forward to applying our model on
behalf of new investors in future. We have been working tirelessly
over the last six months with the new finance team at Electra to
deliver a seamless handover of responsibilities and knowledge upon
the termination of our management agreement on 31 May.
Portfolio Highlights
Portfolio Breakdown:
Total investment portfolio GBP879 million
New investment GBP4 million
Realisations GBP1,067 million
Portfolio investment performance
in the six months 15%
---------------------------------- -----------------
A Busy Period
Portfolio company Transaction Type of transaction
date
-------------------------- -------------- --------------------
Audiotonix February 2017 Portfolio
M&A
Premier Asset Management October 2016 Realisation
AXIO Group December 2016 Realisation
Davies Group January 2017 Realisation
AXIO Group February 2017 Realisation
Treetops February 2017 Portfolio
M&A
Parkdean Resorts March 2017 Realisation
Innovia March 2017 Realisation
Allflex March 2017 Realisation
Audiotonix March 2017 Realisation
-------------------------- -------------- --------------------
Hollywood Bowl Group April 2017 Realisation
Treetops Nurseries April 2017 Realisation
Premier Asset Management April 2017 Realisation
CALA Group and Retirement April 2017 Realisation
Bridge Group
AXIO Group April 2017 Realisation
AXIO Group May 2017 Realisation
PINE May 2017 Realisation
EP1 Secondary Portfolio May 2017 Realisation
-------------------------- -------------- --------------------
Portfolio Overview
At 31 March 2017, Electra's investment portfolio was valued at
GBP879 million. The investment portfolio consists of Buyouts and
Co-investments, Secondaries, Debt investments, listed securities
and funds. The top 10 and 20 investments account for 78% and 96%
respectively of the investment portfolio.
Portfolio Breakdown
Investment portfolio 2017 2016 2015 2014 2013
at 31 March GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------ ------ ------ ------
Buyouts & Co-investments 688 1,448 1,283 764 726
Secondaries 54 86 101 112 138
Debt 45 59 4 7 82
-------------------------- ------ ------ ------ ------ ------
Core Investment
Portfolio 787 1,593 1,388 883 946
Non-core Investment
Portfolio 92 110 103 156 175
Investment portfolio 879 1,703 1,491 1,039 1,121
-------------------------- ------ ------ ------ ------ ------
Buyouts and Co-investments
Buyouts and Co-investments form the major part of Electra's
portfolio and consist of direct equity investments in 16 private
companies with an aggregate value of GBP688 million. The 10 largest
investments account for 97% of the Buyouts and Co-investments
portfolio at 31 March 2017.
Secondaries
Secondary investments consist of limited partnership interests
in third-party private equity funds purchased from investors
exiting their positions prior to the end of the fund's life. As a
result of their relative maturity, secondary investments typically
produce faster cash returns than Buyouts and Co-investments. At 31
March 2017, Electra held investments in five secondary portfolios
with an aggregate value of GBP54 million.
Debt
Debt investments consist of loans to UK or international
borrowers acquired in either the primary or the secondary market as
either individual or portfolios of assets. The Debt portfolio
comprises both performing credits held through a structured finance
vehicle such as a collateralised loan obligation ("CLO"), where
Epiris has been able to secure attractive risk-adjusted returns and
where a cash yield supports Electra's distribution policy and
liquidity needs; and stretched credits, which refers to debt in
good businesses with bad balance sheets where Epiris can take a
role in the restructuring of the capital structure. At 31 March
2017 Electra held four Debt investments with an aggregate value of
GBP45 million.
Core Investment Portfolio
The Core Investment Portfolio includes investments where Epiris
has an active role in originating, evaluating, negotiating and/or
managing the investment. The core investment portfolio accounts for
89% of the investment portfolio at 31 March 2017 compared to 94% at
30 September 2016 and 93% at 31 March 2016.
Non-core Investment Portfolio
The Non-core Investment Portfolio consists of listed and fund
investments. At 31 March 2017, Electra held four listed investments
(with the exception of Hollywood Bowl Group and Premier Asset
Management, which as core investments are included within Buyouts
and Co-investments above) with an aggregate value of GBP10 million.
Fund investments consist of limited partnership interests in third
party private equity funds where Electra made a primary commitment
to that fund. New primary commitments to funds are no longer part
of Electra's investment strategy and no new primary commitments
have been made since 2011. At 31 March 2017, Electra held
investments in 10 funds with an aggregate value of GBP82
million.
Investment Portfolio Breakdown
2017 2016
At 31 March % %
---------------------------- ----- -----
Buyouts and Co-investments 78 85
Secondaries 6 5
Debt 5 4
Non-core investment
portfolio 11 6
---------------------------- ----- -----
Investment Portfolio - Sector Breakdown
2017 2016
At 31 March % %
----------------------- ----- -----
Food & beverage - 1
Financial & insurance 7 2
House, leisure
and personal goods 21 19
Industrial general
and transportation 1 8
Media 12 10
Real estate 11 3
Private equity
funds 10 6
Secondaries 6 5
Support services 14 15
Technology, hardware
and equipment - 7
Travel and leisure 14 22
Other 4 2
----------------------- ----- -----
Buyouts and Co-investments - Age Analysis
2017 2016
At 31 March % %
------------------ ----- -----
Less than 1 year
old 8 6
1 - 2 years 22 39
2 - 3 years 17 19
3 - 4 years 6 5
Over 4 years 47 31
------------------ ----- -----
Buyouts and Co-investments - Valuation Basis
2017 2016
At 31 March % %
-------------------- ----- -----
Earnings basis 51 87
Recent transaction 42 6
Net assets basis 7 7
-------------------- ----- -----
Buyouts and Co-investments - Geographic Breakdown
2017 2016
At 31 March % %
-------------------- ----- -----
UK 100 84
Continental Europe - 10
USA - 5
Asia and elsewhere - 1
-------------------- ----- -----
Portfolio Review
Portfolio Movement
Electra's investment portfolio decreased to GBP879 million from
GBP1,696 million during the six months to 31 March 2017. The
decrease of GBP817 million resulted from the realisation of
GBP1,067 million of investments, offset by GBP4 million of new
investments and a positive portfolio return of GBP246 million.
Six months to 2017 2016 2015 2014 2013
31 March GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ------ ------ ------ ------
Opening investment
portfolio 1,696 1,630 1,272 968 868
Investments 4 158 129 134 204
Realisations (1,067) (384) (121) (152) (112)
Total return 246 299 211 89 161
-------------------- -------- ------ ------ ------ ------
Closing investment
portfolio 879 1,703 1,491 1,039 1,121
-------------------- -------- ------ ------ ------ ------
Total return on
opening portfolio 15% 18% 17% 9% 19%
-------------------- -------- ------ ------ ------ ------
New Investments
Total new investment for the six months was GBP4 million
compared to GBP158 million in the corresponding period of the
previous year.
New investment was limited by Electra's termination of the
management contract. The only new investment in the period was in
relation to private equity funds in which Electra is a limited
partner which drew down a further GBP4 million. Commitments
outstanding to private equity funds were GBP12 million compared to
GBP14 million at 30 September 2016.
New Investments and Realisations
New investments Realisations
Six months GBPm GBPm
ended
-------------- ---------------- -------------
30 September
2007 233 247
31 March
2008 60 112
30 September
2008 54 89
31 March
2009 62 28
30 September
2009 26 5
31 March
2010 138 81
30 September
2010 45 68
31 March
2011 73 91
30 September
2011 63 46
31 March
2012 92 268
30 September
2012 58 33
31 March
2013 204 112
30 September
2013 133 347
31 March
2014 134 152
30 September
2014 276 200
31 March
2015 129 121
30 September
2015 59 138
31 March
2016 158 384
30 September
2016 61 519
31 March
2017 4 1,067
-------------- ---------------- -------------
Realisations
Total realisations for the six months came to GBP1,067 million
compared to GBP384 million in the corresponding period of the
previous year.
Realisations GBPm
-------------------------- ------
Parkdean Resorts 406
Audiotonix 203
AXIO 160
Innovia 108
Allflex 70
Davies Group 45
Premier Asset Management 36
Other Buyouts and
Co-investments 3
Secondaries 17
Debt 9
Non-core 10
Total 1,067
-------------------------- ------
The most significant realisations during the six months were in
respect of Parkdean Resorts, Audiotonix, AXIO, Innovia, Allflex,
Davies and Premier Asset Management.
Buyouts and Co-investments
The largest realisation was in respect of Parkdean Resorts, a
leading UK operator of caravan holiday parks. Epiris initially
invested in Park Resorts in 2012, buying the company's senior debt
before taking equity control when it led a refinancing in 2013.
This allowed Epiris to implement its strategy to improve
performance and consolidate the sector, which increased group
EBITDA from GBP32 million to GBP118 million in 2016. In March the
company was sold for GBP1.35 billion, with Electra receiving
proceeds of GBP406 million, equivalent to a total realised return
of 3.9x original cost, an IRR of 45%.
Electra received proceeds of GBP203 million from the sale of
Audiotonix in March. Epiris initially invested GBP42 million in
Allen & Heath in 2013 with the intention of building a global
market leader by consolidating the sector and implementing a growth
and operating improvement plan. This strategy was delivered through
two further acquisitions in 2014 as well as a programme focused on
new product development, sales and marketing investment and supply
chain reorganisation to accelerate growth. The outcome was that
EBITDA more than quadrupled over the period of Epiris' investment.
Electra's total realised return on the investment was 4.8x original
cash cost, an IRR of 50%.
Two further realisations from the AXIO group of companies
completed in the period. Vidal, the leading European healthcare
informatics and information systems company, was sold in December
2016 for EUR100 million, and OAG, AXIO's aviation information and
intelligence business, was sold in February 2017 for approximately
$215 million. These were the fourth and fifth major realisations
from AXIO following the sales of JOC Group, Breakbulk and MIMS.
Electra received proceeds of GBP160 million from these two
transactions, taking total cash proceeds from its investment in
AXIO to GBP356 million or 3.9x original cost.
Electra received proceeds of GBP108 million in March from the
sale of its investment in Innovia, a leading manufacturer of
speciality films and substrate for polymer banknotes. In the three
years since Electra's original investment the business has been
transformed through investment in new manufacturing capacity, the
disposal of the non-core Cello division and new business wins
including a contract with the Bank of England to supply the
substrate for the next generation of GBP5 and GBP10 notes.
Electra's total realised return on the investment was 3.3x original
cost, an IRR of 51%.
In March Epiris announced that it had realised Electra's
remaining investment in Allflex, the global leader in animal
intelligence and monitoring technologies for livestock, pets, fish
and other species. Electra originally invested in Allflex in 1998,
eventually selling the business in 2013, generating a return of 15x
original cost and an IRR of 28%. Following the sale, Electra made a
new investment for a minority stake alongside BC Partners. This new
investment was realised in two stages, in July 2016 when Electra
received GBP57 million and in March 2017 when Electra received a
further GBP70 million. The total realised return from the 2013
investment was 1.9x original cost, an IRR of 23%.
Electra received proceeds of GBP45 million from the GBP90
million sale of leading insurance claims service provider Davies
Group in January. Epiris led the acquisition of Davies in 2011 with
a strategy to improve service quality and process efficiency
through technology investment, while repositioning the business as
an outsourcing partner to its customers. The investment
underperformed initially as a result of client losses. Epiris
responded with management change and operational turnaround before
resuming its transformation strategy, which has included seven
add-on acquisitions. This strategy has created a significantly
larger and much better-positioned business than at entry and
allowed an exit in a competitive auction process.
In October 2016 Premier Asset Management successfully completed
an initial public offering ("IPO") on the AIM market of the London
Stock Exchange. Electra received cash proceeds of GBP36 million
from the IPO and continued to hold approximately 8% of the issued
share capital of the company which at 31 March had a valuation of
GBP11 million.
These realisations were achieved at a weighted average EV/EBITDA
multiple of 12.2x. This compares to an average multiple for UK
buyouts valued at over GBP10 million of 9.7x over the past six
months.
In respect of Buyouts and Co-investments, over the past five
years Electra has achieved an average uplift over the prior
valuation* on realisation of 51%.
Company Uplift
(%)
---------------------- -------
Capital Safety Group 76
Agricola 13
esure 37
Noumena 58
Allflex 73
Lil-lets (14)
UGC (Unipart) 7
JOC 35
Breakbulk 46
Labco 16
Nuaire 50
MIMS 135
Daler-Rowney 170
Kalle 34
Allflex 55
Hollywood Bowl 45
Elian 66
Vidal 47
Premier 39
Davies Group 17
OAG 35
Innovia 35
Parkdean Resorts 49
Audiotonix 44
Weighted average 51
---------------------- -------
* Except where the prior valuation at the time reflected the
impending realisation, in which case the "prior, prior" valuation
has been used.
Other realisation proceeds from the Buyouts and Co-investments
portfolio include GBP1 million from Promontoria, which continues to
realise its portfolio of retail properties; and GBP1 million from
PINE.
Secondaries
The Secondaries portfolio produced realisations of GBP17 million
in the six months.
The largest component was the EP1 Secondary Portfolio, from
which Electra received distributions totalling GBP15 million. This
takes total distributions from the EP1 Secondary Portfolio to more
than GBP100 million, or almost 1.1x cost, and the total return on
the investment to 1.5x cost.
Debt
The Debt portfolio produced realisations of GBP9 million in the
six months. The largest contributors to this were Electra's CLO
investments which together generated realisations of GBP5
million.
Non-core Investment Portfolio
Electra received GBP10 million from private equity funds in
which it held a limited partnership interest.
Performance
During the six months to 31 March 2017 Electra's investment
portfolio generated a total return of GBP246 million, an increase
of 15% on the opening portfolio.
Six months ended 2017 2016 2015 2014 2013
31 March GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------ ------ ------ ------
Buyouts and Co-investments 258 268 197 80 117
Secondaries (11) 7 5 3 36
Debt 3 3 2 (3) 3
Non-core (4) 21 7 9 5
Total return 246 299 211 89 161
---------------------------- ------ ------ ------ ------ ------
The performance arose principally from the Buyouts and
Co-investments portfolio which generated a total return of GBP258
million, representing an increase of 18% on the opening portfolio;
the Secondaries portfolio decreased in value by GBP11 million, a
reduction of 15%; and the Debt portfolio provided an uplift of GBP3
million, an increase of 5%. The Non-Core Investment Portfolio
decreased by GBP4 million, or 3% on the opening portfolio.
Buyouts and Co-investments
In the six months to 31 March 2017 the total return of GBP258
million from the Buyouts and Co-investments portfolio included
GBP147 million of realised gains with the balance being unrealised.
Unrealised gains included GBP61 million of appreciation resulting
from the revaluation of investments where Electra has agreed a
transaction that had not yet completed at the period-end. A further
GBP50 million of unrealised gains resulted from Epiris'
determination of the Fair Value of the portfolio.
The most significant realised gains were generated by
Audiotonix, Innovia, Parkdean Resorts and AXIO's sale of OAG, as
discussed above.
The largest components of the appreciation resulting from the
revaluation of investments where Electra has agreed a transaction
that had not yet completed at the period-end were Treetops and
AXIO.
Treetops is a leading UK operator of nursery schools. Having
carved the business out of PINE in 2012, Epiris initiated key
management changes and implemented a transformation strategy based
on organic growth, operational improvement, capital investment and
M&A. This strategy has doubled the size of the schools
portfolio and quadrupled profits, creating a business which has
outperformed the wider market in terms of both growth and margins.
In March Epiris announced that it had agreed to sell Treetops with
anticipated proceeds of GBP94 million representing an uplift of
GBP45 million or 91% in the period. The investment was valued in
line with these anticipated proceeds and the transaction completed
in April. The total realised return on the investment is 6.5x
original cost, an IRR of 59%.
Following the sale of OAG in February 2017, the AXIO group of
companies comprised RISI, the leading information provider for the
global forest products industry, and TechInsights, a leading
intellectual property and technology services provider. In March
Epiris announced that it had agreed to sell RISI to Euromoney
Institutional Investor PLC and the transaction completed in April
when Electra received proceeds of GBP67 million. In May Epiris
announced that it had agreed to sell TechInsights to Oakley
Capital; the sale is expected to complete by the end of May with
anticipated proceeds to Electra of GBP26 million. The investment
was valued in line with these proceeds. These sales will increase
the total cash proceeds received by Electra from its investment in
AXIO to GBP455 million, equivalent to 5.0x original cost, an IRR of
76%. Following these sales, the AXIO investment will comprise a
small amount of cash held against certain contingent
liabilities.
Of the remaining GBP50 million of unrealised returns, the
largest individual movements were in respect of TGI Fridays and
Hotter.
TGI Fridays continues to perform in line with the investment
case. Year-on-year earnings growth has accelerated to 10% in the
last twelve month period as a result of improved like-for-like
sales performance as well as the new store opening programme. The
valuation of Electra's investment has increased by GBP30 million or
33% since September 2016 as a result primarily of earnings growth
and cash flow. The total return on this investment now stands at
1.2x original cost, a 10% IRR,
The valuation of Electra's investment in Hotter has increased by
GBP12 million or 38% since September 2016. Following a period of
underperformance, Epiris recruited a new management team to
implement an operational improvement plan with a focus on cost
reduction and cash and stock management. Earnings have now started
to improve and management's focus has now broadened to incorporate
further revenue growth and margin improvement opportunities.
The table below shows the valuation changes in respect of
Electra's Buyouts and Co-investments portfolio.
Return
Change on opening
in valuation position
Company GBPm %
--------------------- -------------- ------------
Audiotonix 62 44
Treetops Nurseries 45 91
AXIO Group 44 20
TGI Fridays 30 33
Innovia Group 28 35
Parkdean Resorts 26 7
Hotter Shoes 12 38
PINE 7 17
Davies Group 2 4
Allflex Corporation 1 1
Knight Square 1 2
Photobox Group 1 -
Premier Asset
Management 1 1
Retirement Bridge
Group 1 3
Sentinel 1 87
CALA Group (1) -
Hollywood Bowl (3) (7)
--------------------- -------------- ------------
Secondaries and Non-Core Funds
Private equity funds managed by a third party and included
within the Secondaries or Non-Core parts of the portfolio have
hitherto been valued using the net asset value reported by the
underlying manager.
The basis of valuation now reflects the price likely to be
achievable in the secondary market. The aggregate effect has been a
reduction in the valuation of the Non-Core portfolio of GBP4
million.
Alex Fortescue
Managing Partner
Epiris Managers LLP
24 May 2017
Realisations
Allflex Corporation
Date of initial investment: July 2013
Date of realisation: March 2017
Type of deal: Co-investment
Original cost: GBP68 million
Proceeds: GBP127 million
Multiple of cost: 1.9x
IRR: 23%
Location: International
Website: www.allflex-group.com
Management: Dr Stefan Weiskopf, CEO
In 1998 Electra invested GBP23 million in the US$160 million
buyout of Allflex. Fifteen years later, in 2013, Electra sold its
investment in Allflex, generating a return of 15x original cost and
an IRR of 28%, and at the same time made a new minority equity
investment of GBP57 million alongside the private equity buyer. In
January 2015 Electra made a further investment of GBP11 million to
support Allflex's $250 million acquisition of SCR (Engineers)
Ltd.
Allflex is the global leader in animal intelligence and
monitoring technologies for livestock, pets, fish and other
species. It designs, produces and distributes a variety of products
such as radio-frequency identification (RFID) and visual ear tags,
tissue sampling devices, RFID implants, monitoring devices, milk
meters, and other farm management equipment. Allflex operates in 80
countries and employs over 1,800 people worldwide.
The company has continued to benefit from strong underlying
growth in its markets driven by greater regulation of the food
chain to ensure food safety, as well as increasingly sophisticated
farm management techniques. In 2015 the company acquired SCR, the
world's largest manufacturer of smart tags for monitoring cow
fertility and health as well as electronic milk metering equipment.
This acquisition successfully repositioned the company as a leader
in the animal intelligence market, whilst creating further growth
opportunities from the group's combined distribution, technology
and product development resources.
This repositioning has allowed Epiris to sell Electra's
investment in Allflex to financial buyers in two stages, receiving
GBP57 million in July 2016 and a further GBP70 million in March
2017. Total proceeds of GBP127 million are equivalent to a return
of 1.9x original cost on Electra's 2013 investment in Allflex, an
IRR of 23%.
Davies Group
Date of initial investment: September 2011
Date of realisation: January 2017
Type of deal: Buyout
Original cost: GBP40 million
Proceeds: GBP46 million
Multiple of cost: 1.1x
IRR: 3%
Location: UK
Website: www.davies-group.com
Management: Dan Saulter, CEO; Adrian Hill, Chairman
In 2011 Electra invested GBP36 million in the GBP61 million
management buyout of Davies Group from LDC. Between 2012 and 2016 a
further GBP5 million was invested to support the company's M&A
programme which saw it make seven acquisitions.
Davies is a leading insurance services provider. It delivers
third party administration ("TPA") and specialist technical
services to insurance intermediaries, the Lloyd's market, UK &
global insurance companies, and large self-insured businesses. The
company manages more than 170,000 claims each year, handling in
excess of GBP1.2 billion of annual claim cost across property,
casualty, motor and niche insurance classes. In addition to its TPA
services, it provides integrated technical services including loss
adjusting, surveying, fraud detection, and supply chain
solutions.
The company initially underperformed as a result of client
losses. However Epiris responded with a programme of management
change and operational turnaround before executing a strategy to
grow and reposition the business. This was built on an investment
in technology and other service improvement initiatives to create
an efficient and scaleable platform that delivered best-in-class
service to customers and policyholders. This platform was expanded,
with a number of organic initiatives as well as acquisitions, into
adjacent markets in order to broaden the company's service
offering. Organic growth was accelerated by refocusing business
development activities on the broker, MGA and Lloyd's market which
offered stronger growth opportunities as well as deeper customer
relationships.
The successful execution of this strategy has transformed and
repositioned Davies. It is now significantly larger and much better
positioned than at entry, with strong growth prospects and
high-quality earnings. This allowed Davies to be sold for GBP90
million to a financial buyer in January. Electra received proceeds
of GBP45 million, which together with proceeds received previously
equated to a return of 1.1x cost.
Innovia Group
Date of initial investment: April 2014
Date of realisation: March 2017
Type of deal: Co-investment
Original cost: GBP33 million
Proceeds: GBP108 million
Multiple of cost: 3.3x
IRR: 51%
Location: International
Website: www.innoviafilms.com, www.innoviasecurity.com
Management: Mark Robertshaw, CEO; Malcolm Fallen, Chairman
In April 2014 Electra made a EUR40 million (GBP33 million)
equity investment in the EUR498 million buyout of Innovia Group
from the Candover 2001 Fund.
The group is headquartered in Cumbria and operates four
manufacturing sites worldwide. Innovia's Security division is the
leading manufacturer of polymer banknote substrate for central
banks. Polymer banknotes have numerous advantages over paper notes
including security, durability and cleanliness, yet today account
for only a small share of all banknotes in circulation. Innovia
Security benefits from a strong intellectual property portfolio and
a 20-year track record producing substrate for 36 central
banks.
Innovia's Films division is a leading global producer of
speciality high performance films primarily used in packaging
applications for the food and tobacco industries. Innovia Films
benefits from high barriers to entry and steadily growing demand.
It occupies leading positions in mature niche markets and enjoys
long-term customer relationships.
During Epiris' ownership, Innovia has developed its banknote
substrate business as central banks around the world have
increasingly recognised the advantages of polymer over paper
banknotes. In particular the company won a new contract with the
Bank of England to produce the substrate for the next generation
GBP5 and GBP10 notes and completed the construction of a new
manufacturing facility in Cumbria to deliver the contract. A
strengthened management team successfully improved the operational
performance of the substrate business leading to stronger profit
margins and growth prospects.
At the same time, Innovia has continued to grow its packaging
films business through product innovation and capacity expansion,
whilst focusing on higher value-added products, a transformation
that was completed with the sale of the Cellophane business for
EUR75 million to a strategic buyer in 2016.
The growth and repositioning of the business enabled Epiris to
sell Electra's investment in Innovia to a strategic buyer in a
transaction with an enterprise value of C$1.13 billion*. The
transaction completed in early March 2017 with Electra receiving
proceeds of GBP108 million from the sale. This represented an
uplift of 35% on the valuation at 30 September 2016 and is
equivalent to a return of 3.3x original cost, a 51% IRR.
* $1.13 billion Canadian dollars. The exchange rate used was 1.4 C$ / Euro.
Parkdean Resorts
Date of initial investment: January 2012
Date of realisation: March 2017
Type of deal: Buyout
Original cost: GBP132 million
Proceeds: GBP516 million
Multiple of cost: 3.9x
IRR: 45%
Location: UK
Website: www.parkdeanresorts.co.uk
Management: John Waterworth, CEO; Alan Parker, CBE, Chairman
In 2012 Electra acquired senior debt in Park Resorts for GBP70
million at a significant discount to face value, making Electra the
largest lender to the company. Epiris' strategy was to take an
equity position in Park Resorts through a restructuring of the
company's debt and thereafter to grow the business organically and
through acquisition.
Epiris led a refinancing of the business in 2013 as a
consequence of which funds under its management took equity
control. This enabled Epiris to implement a programme of
operational improvement, including cost efficiencies and better
yield management, to increase profit margins. At the same time a
number of opportunities to grow the business through investment in
the park estate were identified and executed, resulting in an
accelerated organic growth rate.
A number of add-on acquisitions were completed. Epiris
identified and led the acquisitions of South Lakeland Parks in 2013
and of Southview and Manor Park in 2014, which together with Park
Resorts were known as the Park Resorts Group. The following year
Epiris led the merger of the Park Resorts Group with Parkdean
Holidays to create Parkdean Resorts.
Parkdean Resorts is a leading UK operator of caravan holiday
parks with 35,000 pitches across 73 sites nationwide. The business
has been created through 11 transactions, including debt purchases,
a debt-for-equity swap, four add-ons and a merger. Epiris has thus
created a business of real scale, having grown profits almost
fourfold and the enterprise value more than sixfold. Today Parkdean
Resorts offers strong growth prospects based, in the short term, on
sales and cost synergies, and in the longer term on further yield
management improvements, continued investment in park facilities
and capacity, and an ongoing acquisition programme.
This allowed Parkdean Resorts to be sold to a financial buyer
for GBP1.35 billion in March. Electra received proceeds of GBP406
million which, together with proceeds previously received, equated
to a total return of 3.9x cost, an IRR of 45%.
Extended Case Study
Audiotonix
Date of initial investment: August 2014
Date of realisation: March 2017
Type of deal: Buyout
Original cash cost: GBP42 million*
Proceeds: GBP207 million
Multiple of cost: 4.8x
IRR: 50%
Location: UK
Website: www.audiotonix.com
Management: James Gordon, CEO; Malcolm Miller, Chairman
The Deal
In 2013 Epiris invested GBP42 million in the acquisition of
Allen & Heath, a producer of professional audio equipment for
live events. Epiris successfully navigated a complex carve-out from
an international corporate in order to agree the transaction on
compelling terms.
The purchase of Allen & Heath was followed by the
acquisitions of Calrec in March 2014 and DiGiCo in August of the
same year to create a new professional audio group valued at GBP143
million. Epiris had identified both Calrec and DiGiCo as add-on
opportunities prior to investing in Allen & Heath.
The combination of these three businesses, subsequently renamed
Audiotonix, created a global market leader with improved scale and
opportunity.
The Business
Audiotonix is the market leader in the design and manufacture of
audio mixing consoles for live events and broadcast sound. Its
three premium brands support live sound for a variety of purposes
such as concerts, TV & radio broadcasting, theatre shows and
live events. All three businesses have strong brands, well-regarded
products and a history of product innovation. The group sells
worldwide, with over 90% of revenues derived outside the UK.
Investment Rationale and Strategy
Whilst Allen & Heath was underinvested and had not grown in
the years preceding Epiris' investment, the global market for
professional audio products is a fragmented market exhibiting
attractive growth fuelled by an increasing number of live events in
both developed and developing markets. Epiris invested in Allen
& Heath with a plan to transform the business through
investment in new product development, acquisition and operational
change.
This plan had been developed prior to acquisition in conjunction
with Malcolm Miller, an experienced private equity Chairman with a
background in professional electronics. Together he and Epiris
identified opportunities to improve Allen & Heath by investing
in new product development and sales and marketing, and developed
the plan to create a market leader through M&A and further
investment.
The acquisitions of Calrec and DiGiCo created a clear
market-leader with a comprehensive offering across product
segments, whilst presenting a significant opportunity to further
reposition the business through improved performance. James Gordon,
the CEO of DiGiCo, became the CEO of the enlarged business and was
instrumental in successfully integrating the businesses. He also
led initiatives to identify areas of synergy as well as the sharing
of best practice.
Business Growth
Epiris worked closely with the Audiotonix management team not
only to integrate the three businesses but also to implement the
growth strategy:
Enhancing management
Epiris, alongside the Chairman, Malcolm Miller, selected James
Gordon, the DiGiCo CEO, to be Group CEO. Additionally an
appropriately skilled board was assembled which included the
external recruitment of a new Chief Financial Officer, a Chief
Technology Officer and divisional Sales & Marketing
Directors.
New product development
We introduced a disciplined process to assist the business in
evaluating which new products to develop. Research and Development
expenditure accounted for over 30% of Audiotonix's overhead and
with lead times from concept to products being shipped of up to
four years, investing in the right products was critically
important. This process improved decision-making within the
business and provided the buyer of Audiotonix with a
well-documented, structured product development process along with
a demonstrable return on investment from recent product launches.
Improved processes in R&D were supported with additional
resource and with headcount in R&D increasing by 23% under
Epiris' management.
Operational efficiency
Audiotonix has a number of manufacturing locations in the UK as
well as an outsourced manufacturing partner in China. During
Electra's ownership Epiris was able to optimise the manufacturing
process and footprint. Several changes were made, including
outsourcing all high-volume manufacturing to China, and
consolidating UK assembly, prototyping capacity and warehousing to
dedicated locations. In addition the facilities themselves were
upgraded at two locations and a new facility was acquired at a
third to ensure adequate capacity as volumes grew. In aggregate the
changes ensured Audiotonix had highly-efficient operations
appropriate to support world-leading brands and product
development.
Outcome
Epiris acquired three separate businesses at attractive entry
prices and successfully executed a strategy to transform them, not
only by combining them to create a global market leader, but also
by improving growth and profitability through greater strategic and
operational focus. Earnings more than quadrupled from 2013 whilst
the profit margin increased by nine percentage points. Epiris'
approach has created a business with significantly improved
financial performance, a proven growth strategy and an exciting
future.
Epiris sold Electra's investment in Audiotonix to a financial
buyer in a competitive sale process which completed in March 2017.
Electra received proceeds from the sale of GBP203 million, an
uplift of GBP62 million or 44% on the previous valuation of the
investment at 30 September 2016. This equated to a return of 4.8x
original cash cost* and an IRR of 50%*.
Returns Attribution, Multiple of Money
Multiple
of money
----------------- ----------
Cost 1.0x
EBITDA growth 1.1x
Deleveraging 0.2x
Multiple growth 0.9x
Buying well and
transforming** 1.5x
----------------- ----------
Return 4.8x
----------------- ----------
* The original cash cost of Electra's investment in Allen &
Heath excludes an investment profit that was capitalised into the
accounting cost of the investment upon the Audiotonix transaction
in August 2014. The accounting cost of the investment including
this capitalised profit is GBP64 million.
** The value ascribed to Epiris' ability to buy companies at an
attractive valuation, typically below market comparables, and then
reposition them through M&A, strategic focus and operational
improvement in order to command a premium multiple at exit.
Key Investments
Fair Fair
Value Value
of holding of holding
at at
30 Sep Net payments/ Performance 31 Mar
2016 (receipts) in period 2017
GBPm GBPm GBPm GBPm
---------------------------- ------------ -------------- ------------ ------------
Buyouts and Co-investments
TGI Fridays 90 - 30 120
AXIO Group 220 (160) 44 104
Photobox Group 102 - 1 103
Treetops Nurseries 49 - 45 94
Retirement Bridge
Group 47 - 1 48
CALA Group 47 - (1) 46
PINE 40 (1) 7 46
Hotter Shoes 31 - 12 43
Hollywood Bowl
Group 44 - (3) 41
Knight Square 25 - 1 26
Premier Asset
Management 46 (36) 1 11
Other 7 (2) 1 6
748 (199) 139 688
Parkdean Resorts 380 (406) 26 -
Audiotonix 141 (203) 62 -
Innovia Group 80 (108) 28 -
Allflex Corporation 69 (70) 1 -
Davies Group 43 (45) 2 -
---------------------------- ------------ -------------- ------------ ------------
Total Buyouts
and Co-investments 1,461 (1,031) 258 688
---------------------------- ------------ -------------- ------------ ------------
Secondaries
EP1 Secondary
Portfolio 69 (14) (11) 44
Other 13 (3) - 10
---------------------------- ------------ -------------- ------------ ------------
Total Secondaries 82 (17) (11) 54
---------------------------- ------------ -------------- ------------ ------------
Debt
Cordatus VI 22 (3) 1 20
Tymon Park 16 (2) 1 15
Other 13 (4) 1 10
---------------------------- ------------ -------------- ------------ ------------
Total Debt 51 (9) 3 45
---------------------------- ------------ -------------- ------------ ------------
Non-core Investments
Listed 10 - - 10
Funds 92 (6) (4) 82
Total Non-core
Investments 102 (6) (4) 92
---------------------------- ------------ -------------- ------------ ------------
TOTAL INVESTMENT
PORTFOLIO 1,696 (1,063) 246 879
---------------------------- ------------ -------------- ------------ ------------
Large Buyouts and Co-investments
TGI Fridays
Date of initial investment: December 2014
Type of deal: Buyout
Equity ownership: 78%
Original cost: GBP100 million
Amount realised: GBP3 million
Valuation: GBP120 million
Valuation: Based on multiple of earnings
Multiple of cost: 1.2x
IRR: 10%
Location: UK
Website: www.tgifridays.co.uk
Management: Karen Forrester, CEO; Murray Hennessy, Non-Executive
Chairman
In December 2014 Electra invested GBP99 million of equity in the
management buyout of the UK franchise of TGI Fridays ("TGIF") from
its American parent.
TGIF, which has the exclusive UK rights to operate under the TGI
Fridays brand, has 76 American-styled restaurants in a range of
locations, including city centres, shopping centres and leisure
parks. This is an established brand which works well across the
country. It offers bold, distinctive American food as well as an
innovative cocktail list, and provides a high-energy, fun
environment with a wide demographic appeal. Key to the success of
the customer experience is the company's focus on hiring and
retaining enthusiastic front-of-house staff to offer a high level
of service.
The company offers a differentiated product, with a wide
demographic appeal, in the casual dining market. It demonstrates
attractive financial characteristics, outperforming its peers
across a range of key performance indicators and offering a high
return on capital expenditure. The intention is to continue to grow
through new restaurant openings, as well as improving yield
management through pricing and marketing initiatives.
The year to December 2016 saw revenue and underlying profits
growth of 16% and 12% respectively. Like-for-like performance,
which weakened early in 2016, recovered in the second half of the
year as a result of a number of initiatives to improve the
proposition and marketing effectiveness. Stronger performance from
the existing estate was supplemented by five new store openings.
The beginning of the current financial year has seen a continuation
of the positive momentum achieved in late 2016 with revenue,
profits and margins all ahead of budget.
AXIO Group
Date of initial investment: April 2013
Type of deal: Buyout
Equity ownership: 69%
Original cost: GBP91 million
Amount realised: GBP353 million
Valuation: GBP104 million
Valuation: Based on price of recent transaction
Multiple of cost: 5.0x
IRR: 76%
Location: International
Website: www.axiogroup.net
Management: Henry Elkington, CEO; Hans Gieskes, Chairman
In 2013 Electra invested GBP91 million in debt and equity to
finance the GBP148 million acquisition of UBM plc's Data Services
division, since renamed AXIO Group.
AXIO originally comprised seven information businesses serving a
range of sectors in over 25 countries: healthcare, intellectual
property licensing, containerised trade and breakbulk services,
aviation and forest products.
AXIO's businesses are defensive by virtue of their industry and
geographic diversity. Its strong brands occupy leadership positions
in niche markets and are robust and cash-generative. The investment
plan has been to transform each business by developing the right
long-term strategy and delivering through operational improvement
and M&A, and then to realise multiple expansion by selling the
portfolio's components individually.
By the end of March AXIO had sold five of its seven businesses,
namely JOC Group, Breakbulk, MIMS, Vidal and OAG. Four of these
sales were to strategic acquirers whilst one was to a financial
buyer. All were realised at double-digit multiples of earnings.
After the end of March Epiris sold the last two AXIO businesses:
RISI, the leading information provider for the global forest
products industry, in April; and TechInsights, the global leader in
intellectual property consulting and technical reverse engineering,
a transaction which is due to be completed in May. Following these
sales the investment in AXIO has returned GBP455 million,
equivalent to 5x original cost, an IRR of 76%.
Photobox Group
Date of initial investment: January 2016
Type of deal: Buyout
Equity ownership: 37%
Original cost: GBP89 million
Amount realised: GBP2 million
Valuation: GBP103 million
Valuation: Based on multiple of earnings
Multiple of cost: 1.2x
IRR: 15%
Location: Europe
Website: www.group.photobox.com
Management: Jody Ford, CEO; Douglas McCallum, Chairman
In January 2016, Electra invested GBP89 million in the
acquisition of Photobox alongside Exponent Private Equity.
Photobox is Europe's leading digital consumer service for
personalised products and gifts. It enables millions of customers
to share memories by turning their digital photographs into a range
of personalised products and gifts, from traditional prints and
greetings cards to photobooks, calendars and canvases, using the
group's websites, installed software and mobile applications.
Products are manufactured at one of the group's five production
facilities and sold across Europe through the PhotoBox, Moonpig,
Hofmann and posterXXL brands.
Photobox is the European market leader and due to its scale is
well placed to capture further market growth, which is expected to
continue as a result of the growth in digital photography as well
as an increased propensity to purchase personalised products. Our
strategy is to accelerate growth through improving the rate and
economics of customer acquisition as well as through product
innovation, and to ensure that growth is delivered effectively and
efficiently.
After a strong start to the investment, performance in the main
Photobox brand has been a little softer, although this has been
offset by strong performance in the Moonpig brand, which continues
to go from strength to strength. There has been significant
investment in the management team over the last twelve months,
including the appointment of a new CEO, Jody Ford. There are a
number of pricing initiatives underway, which are designed to
improve the group's operating margins.
Treetops Nurseries
Date of initial investment: February 2012
Type of deal: Buyout
Equity ownership: 79%
Original cost: GBP15 million
Amount realised: GBP3 million
Valuation: GBP94 million
Valuation: Based on price of recent transaction
Multiple of cost: 6.5x
IRR: 59%
Location: UK
Website: www.treetopsnurseries.co.uk
Management: Charles Eggleston, CEO; Stephen Booty, Chairman
In 2012 Treetops Nurseries was spun out of PINE as part of a
refinancing and is now a standalone investment in Electra's
portfolio. Electra invested a further GBP2 million in 2013 to
finance the acquisition of Toybox (four freehold sites in
Bedfordshire), an additional GBP5 million in 2014 to fund the
acquisition of Happy Child (15 nurseries), and in 2016 Electra
underwrote the purchase of Kindercare (ten leasehold nurseries in
Yorkshire). In early 2017 two further nurseries were acquired.
Headquartered in Derby, Treetops is the fourth-largest nursery
school operator in the UK, providing childcare to in excess of
6,000 children and employing more than 1,300 people. The company
operates 61 schools, predominantly in the North of England, the
Midlands and the South East.
Treetops was separated from PINE in order to allow it to benefit
from dedicated management focus and a transformation strategy
designed to accelerate growth through strategic focus, operational
improvement, capital investment and M&A. Opportunities to grow
through acquisition of other operators in the highly fragmented
nursery market have been taken and organic growth has been driven
in particular by improved marketing and investment in its sites,
designed to improve occupancy levels.
In March 2017 Epiris agreed to sell Treetops to Busy Bees. The
transaction completed in April 2017 with Electra receiving proceeds
of GBP94 million, an uplift of GBP45 million or 91% on the
valuation of its investment at 30 September 2016. This equates to a
return of 6.5x cost and an IRR of 59%.
Retirement Bridge Group
Date of initial investment: May 2016
Type of deal: Co-investment
Equity ownership: 50%
Original cost: GBP45 million
Amount realised: GBP1 million
Valuation: GBP48 million
Valuation: Based on price of recent transaction
Multiple of cost: 1.1x
IRR: 9%
Location: UK
Website: n/a
Management: Paul Barber, CEO; Steve Groves, Chairman
In May 2016, working alongside Patron Capital, Electra invested
GBP45 million in the acquisition of Retirement Bridge Group,
formerly known as Grainger Retirement Solutions.
Retirement Bridge is a consolidator and servicer of home
reversion equity release plans with a portfolio of more than 3,500
properties across the UK. The investment offers an attractive
risk-adjusted return benefiting from a cash yield and downside
protection from the high level of asset backing.
The intention was to optimise the return from the existing
portfolio through operational improvement initiatives and organic
and acquisition-led growth.
Performance since acquisition has been in line with
expectations. The company was been successfully separated from its
former parent and the management team was complemented through the
appointment of Steve Groves, formerly CEO of Partnership Group plc,
as Chairman.
The sale of the investment became necessary following the
termination of Epiris' management contract by Electra. As a result
Retirement Bridge was sold to Patron Capital Partners in April
2017, returning proceeds of GBP48 million to Electra, equivalent to
a return of 1.1x cost.
CALA Group
Date of initial investment: March 2013
Type of deal: Co-investment
Equity ownership: 11%
Original cost: GBP32 million
Amount realised: GBPnil
Valuation: GBP46 million
Valuation: Based on price of recent transaction
Multiple of cost: 1.5x
IRR: 12%
Location: UK
Website: www.cala.co.uk/cala-group
Management: Alan Brown, CEO; Manjit Wolstenholme, Chairman
In 2013 Electra made an equity investment of GBP13 million
alongside Patron Capital Partners and Legal & General in the
GBP210 million acquisition of CALA Group from Lloyds Banking Group.
During 2014 Electra increased its investment to GBP32 million to
support land purchases and the acquisition of Banner Homes.
CALA Group is a national house builder which provides high
quality homes in Scotland, the Midlands and South East England.
Banner Homes' focus on premium homes in London and the South East
represents a strong strategic fit for CALA and accelerates its
strategy to deliver GBP1 billion in revenue by 2018.
The UK currently experiences a significant undersupply of new
houses. Loosening planning regulations, measures to improve
mortgage availability and a stable macro-economic environment
created favourable conditions for an investment in the
housebuilding sector.
In April 2017 CALA was sold to Patron Capital Partners with
Electra receiving proceeds of GBP46 million. This equates to a
total return of 1.5x cost, an IRR of 12%.
PINE
Date of initial investment: June 2005
Type of deal: Co-investment
Equity ownership: 99%
Original equity cost: GBP31 million
Equity amount realised: GBP20 million
Equity valuation: GBP46 million
Equity multiple of cost: 2.1x
Equity IRR: 14%
Original debt cost: GBP13 million
Debt amount realised: GBP13 million
Valuation: Derived from property investment value
Location: UK
Website: www.thepinefund.com
Management: Harry Hyman, CEO (Nexus Group)
Electra first invested in PINE in 2005 in order to exploit an
identified opportunity to create a new institutionally acceptable
property asset class in conjunction with an experienced property
specialist and a nursery school operator.
PINE initially comprised a sale and leaseback property
investment portfolio of nursery schools let on index-linked leases
to nursery school operators, as well as a nursery school operating
business.
The objective has been to expand PINE's investment focus to the
education sector generally, in order to broaden its appeal and
range of exit options. In 2015 PINE made its first investment
outside the nursery sector when it acquired a property relating to
two special educational needs schools operated by Priory Group. In
2016 PINE acquired a further two nursery school freeholds and now
owns a portfolio of over 30 properties leased to education
providers.
PINE's properties with long-lease lengths of 20 years plus,
contracted annual uplifts and strong tenant covenants have
continued to perform ahead of the more mainstream property market.
These differentiators from the conventional UK property market have
resulted in PINE's portfolio becoming an increasingly attractive
investment to potential acquirers searching for yield. In May 2017
Epiris announced the sale of the business. The sale returned GBP50
million to Electra, which inclusive of proceeds previously received
is equivalent to a return of 1.9x cost, an IRR of 14%.
Hotter Shoes
Date of initial investment: January 2014
Type of deal: Buyout
Equity ownership: 61%
Original cost: GBP84 million
Amount realised: GBP2 million
Valuation: GBP43 million
Valuation: Based on multiple of earnings
Multiple of cost: 0.5x
IRR: n/a
Location: International
Website: www.hotter.com
Management: Sara Prowse, CEO; Alan White, Chairman
In January 2014 Electra invested GBP84 million in equity in the
management buyout of Hotter Shoes from Stewart Houlgrave, the
company's founder, and Gresham LLP.
Established in 1959, Hotter is Britain's largest shoe
manufacturer and sells over two million pairs of shoes each year in
the UK and internationally in stores, in catalogues and online. The
company, with a strong focus on comfort and service, serves
customers whose age, health or lifestyle are such that they require
more cushioned and supportive footwear.
Hotter is a growth business, driven by demographic change (in
particular population ageing), international growth and the rapid
roll-out of a retail store estate in the UK. These growth drivers
offer significant further opportunity.
Following a difficult year for the business in the financial
year to January 2016 a number of steps were taken to improve
performance. These included the appointment of a new Chief
Executive, who has since strengthened the leadership team and
successfully implemented a turnaround plan focused on cash,
inventory and cost management as well as retail performance
improvement. As a result of these actions trading has stabilised
and profits have increased, growing by 8% in the year to January
2017.
Hollywood Bowl Group PLC
Date of initial investment: September 2014
Type of deal: Buyout
Equity ownership: 18%
Original cost: GBP50 million
Amount realised: GBP155 million
Valuation: GBP41 million
Valuation: Based on listed share price
Equity multiple of cost: 3.9x
Equity IRR: 92%
Location: UK
Website: www.hollywoodbowlgroup.com
Management: Steve Burns, CEO; Peter Boddy, Chairman
In September 2014 Electra made a GBP50 million equity investment
in the GBP91 million management buyout of Hollywood Bowl Group from
private shareholders and CBPE Capital. In December 2015 Hollywood
Bowl completed the acquisition of Bowlplex, adding 10 ten-pin
bowling centres to the existing portfolio. Electra invested GBP10
million by way of a mezzanine loan to finance the acquisition.
Later in the same month Electra invested a further GBP11 million to
pre-emptively acquire a portion of Hollywood Bowl Group's senior
debt, at a discount to par, from one of its lenders who was exiting
the senior debt market. In September 2016 Hollywood Bowl Group
successfully completed an initial public offering ("IPO") on the
main market of the London Stock Exchange, valuing Electra's equity
and debt investments in the group at GBP217 million. On admission
Electra received cash proceeds of GBP153 million from the sale of
its equity investment as well as GBP22 million from the repayment
of the two debt instruments. In addition Electra continued to hold
approximately 18% of the issued share capital of the company.
Hollywood Bowl Group operates 55 ten-pin bowling centres under
the Hollywood Bowl, AMF and Bowlplex brands. The company offers
high-quality bowling centres, predominantly located in leisure or
retail parks, which offer a complete family entertainment
experience with restaurants, licenced bars and state-of-the-art
family games arcades.
Ten-pin bowling is a robust and growing part of the UK leisure
sector, offering opportunities for further expansion through new
openings. Hollywood Bowl Group is the UK market leader and has
grown ahead of the market thanks to its history of investment in
sites and customer experience, as a result of which its estate is
well positioned to make further advances.
Trading at Hollywood Bowl Group continues to be very strong. For
the year ended 30 September 2016 the company reported increases in
revenues and profits of 24% and 43% respectively. Performance has
been driven by growth in the core estate, the centre refurbishment
programme, an improved food and beverage offer and higher amusement
spend. In April 2017, Epiris sold Electra's remaining stake in
Hollywood Bowl, concluding what has been an outstanding investment
for Electra's investors.
Knight Square
Date of initial investment: March 2012
Type of deal: Buyout
Equity ownership: 49%
Original cost: GBP22 million
Amount realised: GBP14 million
Valuation: GBP26 million
Valuation: Based on multiple of earnings
Multiple of cost: 1.8x
IRR: 16%
Location: UK
Website: www.knightsquare.com,
Management: Paul Lester CBE, Chairman
In 2012 Electra made a GBP22 million equity investment in the
GBP62 million acquisition of Knight Square (formerly known as
Peverel), the UK's leading property management services group, from
its administrators. In October 2014 the company completed a
refinancing that allowed it to make loan repayments of GBP14
million to Electra.
Knight Square is one of the UK's leading property services
businesses. Through its FirstPort business, the group provides
general management services to almost 4,000 retirement and other
residential developments across the UK. Through Appello, it also
provides telecare and telehealth installation and monitoring
services that allow people to live independently in their own
homes.
Knight Square is the leader in a robust market. At the time of
investment, the intention was to invest in process and service
improvement initiatives in order to enable the business to solidify
this leadership position. With much of this work now complete, the
focus is on targeting opportunities to grow not only as a result of
demographic change but also by taking advantage of the group's
nationwide coverage and economies of scale.
Group revenue growth was 2% in the financial year to December
2016 reflecting a number of positive developments during the year.
FirstPort is demonstrating greater success in its new business
development activities as well as higher customer retention levels
as a result of its improved service levels.
Premier Asset Management PLC
Date of initial investment: September 2007
Type of deal: Buyout
Equity ownership: 8%
Original cost: GBP57 million
Amount realised: GBP61 million
Valuation: GBP11 million
Valuation: Based on listed share price
Multiple of cost: 1.3x
IRR: 3%
Location: UK
Website: www.premierfunds.co.uk,
Management: Mike O'Shea, CEO; Mike Vogel, Chairman
In 2007 Electra made a GBP33 million minority equity and debt
investment in the take-private of Premier. In 2009 Electra made a
further GBP24 million equity investment to support the acquisition
of two OEICs from Aberdeen Asset Management. In 2014 Electra sold a
majority shareholding in Premier to funds under the management of
Elcot Capital Management for a consideration comprising GBP20
million in cash and GBP26 million of preference shares while
retaining an equity interest of 25%. In 2015 Premier redeemed GBP4
million of preference shares. In October 2016 Premier successfully
completed an initial public offering ("IPO") on the AIM market of
the London Stock Exchange. Electra sold just over 75% of its
holding in the IPO, receiving cash proceeds of GBP36 million and
continuing to hold approximately 8% of the issued share capital of
the company.
Premier is a retail asset manager, with the bulk of its assets
under management ("AUM") in branded retail funds, of which the
largest franchises are in multi-asset, UK equities, global equities
and fixed income.
The retail investment market displays growth drivers including
demographic and regulatory change from which Premier is well placed
to benefit due to its strong product portfolio and investment
performance. The intention remains to accelerate growth by
investing in sales and marketing and by exploring other
opportunities to extend the scope of the business.
Premier continues to perform well, with AUM and profits growth
in the year to 30 September 2016 of 22% and 36% respectively. In
the current financial year, AUM have increased further reaching
GBP5.5 billion at 31 March 2017. Electra's remaining 8% interest in
Premier's ordinary shares was sold in April 2017.
Financial Review
"Net asset value per share total return was 10% for the six
months to March 2017 and 30% for the twelve months. These excellent
results continue the good long term performance of Electra with NAV
total returns over the last ten years of 13% per annum."
Analysis of Movement in Net Asset Value per share
The Consolidated Income Statement on page 35 of this Report
shows the total return for the period and, together with dividends
of 110p per ordinary share paid during the period, explains the
movement in NAV per share for the six months to 31 March 2017.
During this period NAV per share increased by nearly 400p per
share from 5,149p to 5,544p and taking into account the dividend of
110p per share paid during the period the total return for the six
months was 10%. This half year period saw further strong
performance from the investment portfolio which contributed 643p
per share, a 12% gross return on the opening NAV per share.
Deducted from this, as shown below, were operating costs and tax,
which together totalled 31p per share; the priority profit share
paid to Epiris for managing the portfolio of 44p per share; and the
charge for incentive schemes of 79p per share (see further detail
below). Additionally, there was a small adjustment of 4p to the
cost of the termination payment which will be payable to Epiris at
the end of its notice period in May 2017 (see further detail
below). Dividends of 110p per share were paid in the six months to
31 March 2017.
p
-------------------------- ------
1 October 2016 Opening
NAV per share 5,149
Capital gains and income 643
Expenses, FX and tax (31)
Priority profit share (44)
Incentive provisions (79)
Termination payment (4)
Dividend paid (110)
Share buyback 20
31 March 2017 Closing
NAV per share 5,544
-------------------------- ------
Incentive Schemes
The existing incentive schemes operated by Electra
(alternatively referred to as "carried interest") are based on
three-year pools. Currently, there are four pools in relation to
the three-year periods commencing 2006, 2009, 2012 and 2015. The
carried interest schemes are described in more detail in Note 6 on
pages 42 to 44.
The charge for the year of GBP38 million results from the strong
investment performance in the six months, much of which relates to
investments which have been sold either in the period or shortly
thereafter. The post-2006 pools accrue carried interest at 18% of
net investment profits, but the provision is made on a three-year
pooled basis and after charging an amount in respect of PPS. This
means the actual accrual rate is just over 15%.
The carried interest provision has decreased from GBP243 million
to GBP87 million at 31 March 2017, mostly because of the cash
payment to participants as described below. Additionally, a
reduction of GBP8 million or 20% has been made to the provision to
reflect the terms of the partnership agreement which governs the
carried interest arrangements and specifies that following the date
of termination the participants shall be entitled to 80% of any
future payments of carried interest. This was calculated taking
into account the actual realisations made since the period end and
any that are anticipated to complete by the termination date.
Over GBP1 billion of cash was generated by the investment
portfolio in the six months to 31 March 2017. This follows on from
the high level of realisations seen in the year to 30 September
2016 when over GBP900 million was realised. As a consequence the
original capital, 8% hurdle and notional fees in the 2009 and 2012
pools were repaid to Electra resulting in the accrued carried
interest being partially paid. In aggregate some GBP192 million was
paid to the participants in the carried interest schemes. Of this
GBP179 million was from the 2009 and 2012 pools which collectively
delivered profit after notional PPS of GBP1 billion. The table
below summaries the movements in the six months.
Total
including
LTI Initial 2006 2009 2012 2015 Adjustments Total creditors
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- -------- ----- ----- ----- ----- ------------ ------ -----------
At 1 October
2016 7 1 8 82 141 4 - 243 251
Paid - - (7) (81) (98) - - (186) (192)
Increase 3 (1) 1 5 29 1 - 38 38
20% reduction* - - - - - - (8) (8) (8)
---------------- ----- -------- ----- ----- ----- ----- ------------ ------ -----------
At 31 March
2017 10 - 2 6 72 5 (8) 87 89
---------------- ----- -------- ----- ----- ----- ----- ------------ ------ -----------
* Calculated based on the anticipated position at 31 May 2017.
Net Liquid Resources
The Consolidated Cash Flow Statement on page 38 analyses the
movement in the Group's cash for the six months. Cash on the
Balance Sheet has increased substantially, by GBP714 million to
GBP1,373 million. Cash inflows were in the main related to sales of
investments and investment income, which yielded GBP1,067 million,
more than in the whole of the year to September 2016. The largest
components of this related to just two investments, Parkdean
Resorts GBP406 million and Audiotonix GBP203 million, which
together make up nearly 60% of the total.
During the period, payments to shareholders consisted of the
share buyback of GBP94 million and the second interim dividend paid
of GBP44 million. The largest outflow was the carried interest
payment described above of GBP192 million. Other operating costs
including the PPS amounted to GBP23 million.
In May 2017 a dividend of 2,612p, or 47% of the March 2017 NAV
was paid to shareholders resulting in a cash outflow of GBP1
billion. On termination of the management contract with Epiris on
31 May 2017 a further PPS will be payable to Epiris of GBP34
million, which is based on the PPS paid for the 12 months prior to
termination.
Accordingly, it is expected that cash, after taking the above
into account together with investment disposals previously
announced, net of carried interest, will be approximately GBP740
million.
FX
At 31 March 2017, the estimated foreign currency exposure was
EUR150 million and $60 million based on the currency of underlying
securities in the investment portfolio. During the six months to 31
March 2017, Sterling has strengthened slightly against the Euro and
weakened against the US Dollar. Consequently, the impact of
currency has been relatively benign with the two major exposures
offsetting each other. In aggregate the impact of currency on the
portfolio is approximately GBP5 million. The GBP1 million movement
in translation reserves in the Consolidated Statement of
Comprehensive Income, on page 35 of this Report, arises from
translation of opening shareholders capital in relation to certain
overseas subsidiaries.
Steve Ozin
Partner
Epiris Managers LLP
Financial Statements
Consolidated Income Statement (unaudited)
2017 2016
Revenue Capital Total Revenue Capital Total
For the six months GBPm GBPm GBPm GBPm GBPm GBPm
ended 31 March
---------------------------- -------- -------- ------- -------- -------- -------
Profit on investments:
Investment income/net
gain 47 199 246 53 252 305
Loss on revaluation
of foreign currencies - - - - (5) (5)
---------------------------- -------- -------- ------- -------- -------- -------
47 199 246 53 247 300
Incentive schemes - (30) (30) - (47) (47)
Priority profit share (17) - (17) (14) - (14)
Termination payment (2) - (2) - - -
Income reversal - - - (6) - (6)
Other expenses (6) - (6) (2) - (2)
---------------------------- -------- -------- ------- -------- -------- -------
Net Profit before
Finance Costs and
Taxation 22 169 191 31 200 231
Finance costs - - - (3) (2) (5)
---------------------------- -------- -------- ------- -------- -------- -------
Profit on Ordinary
Activities before
Taxation 22 169 191 28 198 226
Taxation charge (3) - (3) (3) - (3)
---------------------------- -------- -------- -------- -------- -------
Profit on Ordinary
Activities after Taxation
attributable to owners
of the parent 19 169 188 25 198 223
---------------------------- -------- -------- -------
Basic Earnings per
Ordinary Share (pence) 47.14 432.20 479.34 66.84 515.39 582.23
---------------------------- -------- -------- ------- -------- -------- -------
Diluted Earnings per
Ordinary Share (pence) 47.14 432.20 479.34 63.63 490.63 554.26
---------------------------- -------- -------- ------- -------- -------- -------
The 'Total' columns of this statement represent the Group's
Income Statement prepared in accordance with International
Financial Reporting Standards adopted by the EU ("IFRS"). The
supplementary Revenue and Capital columns are both prepared under
guidance published by the Association of Investment Companies. This
is further explained in the Basis of Accounting and Significant
Accounting Policies in Note 1.
The amounts dealt with in the Consolidated Income Statement are
all derived from continuing activities.
Consolidated Statement of Comprehensive Income
2017 2016
For the six months ended 31 GBPm GBPm
March
----------------------------------------- ----- -----
Profit for the year 188 223
Exchange differences arising
on consolidation (1) 6
----------------------------------------- ----- -----
Total Comprehensive Income for
the period 187 229
----------------------------------------- ----- -----
Dividends (44) (31)
----------------------------------------- ----- -----
Total Comprehensive Income attributable
to owners of the parent 143 198
----------------------------------------- ----- -----
The Notes on pages 39 to 46 are an integral part of the
Financial Statements.
Consolidated Statement of Changes in Equity (unaudited)
For the
six months
ended 31 Realised Unrealised
March 2017 Called-up Capital capital capital Total
for the share Share redemption Other Translation profits/ profits/ Revenue shareholders'
Group capital premium reserve reserves reserve (losses) (losses) reserves funds
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ---------- -------- ----------- --------- ------------ --------- ----------- --------- --------------
Opening
balance
at
1 October
2016 10 123 34 - 11 1,508 311 77 2,074
Net revenue
profit added
to the reserves - - - - - - - 19 19
Net profits
on realisation
of investments
during the
period - - - - - 106 - - 106
Increase
in value
of non-current
investments - - - - - - 93 - 93
Increase
in incentive
provisions - - - - - - (30) - (30)
Profit/(losses)
on foreign
currencies - - - - (1) - - - (1)
Investments
sold during
the year - - - - - 244 (244) - -
Dividend - - - - - (44) - - (44)
Share buy
back (1) - 1 - - (94) - - (94)
---------- -------- ----------- --------- ------------ --------- ----------- --------- --------------
At 31 March
2017 9 123 35 - 10 1,720 130 96 2,123
----------------- ---------- -------- ----------- --------- ------------ --------- ----------- --------- --------------
For the
six months
ended Realised Unrealised
31 March Called-up Capital capital capital Total
2016 for share Share redemption Other Translation profits/ profits/ Revenue shareholders'
the Group capital premium reserve reserves reserve (losses) (losses) reserves funds
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ---------- -------- ----------- --------- ------------ --------- ----------- --------- --------------
Opening
balance
at
1 October
2015 9 39 34 20 (4) 1,029 312 64 1,503
Net revenue
profit added
to the reserves - - - - - - - 25 25
Net profits
on realisation
of investments
during the
period - - - - - 7 - - 9
Financing
costs - - - - - (2) - - (2)
Increase
in value
of non-current
investments - - - - - - 245 - 243
Increase
in incentive
provisions - - - - - - (47) - (47)
Profit/(losses)
on foreign
currencies - - - - 6 (5) - - 1
Investments
sold during
the period - - - - - 170 (170) - -
Conversion
of Convertible
Bond 1 84 - (20) - - - 8 73
Dividend - - - - - (31) - - (31)
Share buy - - - - - - - - -
back
At 31 March
2016 10 123 34 - 2 1,168 340 97 1,774
----------------- ---------- -------- ----------- --------- ------------ --------- ----------- --------- --------------
Consolidated Balance Sheet (unaudited)
As at (Audited) As at
31 March As at 31 March
2017 30 September 2016
2016
Note GBPm GBPm GBPm GBPm GBPm GBPm
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Non-Current Assets
Investments held
at fair value:
Unlisted and listed 879 1,696 1,703
879 1,696 1,703
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Current Assets
Trade and other
receivables - 4 4
Current tax asset - 1 -
Cash and cash equivalents 1,373 659 321
------ ----------- ------
1,373 664 325
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Current Liabilities
Current tax liability 3 - -
6 Termination Payment 34 32 -
Trade and other
payables 5 11 11
Zero Dividend Preference
Shares - - 72
Net Current Assets 1,331 621 242
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Total Assets less
Current Liabilities 2,210 2,317 1,945
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Provisions for liabilities
6 and charges 87 243 171
------ ----------- ------ -----------
Non-Current Liabilities 87 243 171
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Net Assets 2,123 2,074 1,774
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Capital and Reserves
Called up share
5 capital 9 10 10
Share premium 123 123 123
Capital redemption
reserve 35 34 34
Translation reserve 10 11 2
Realised capital
profits 1,720 1,508 1,168
Unrealised capital
profits 130 311 340
Revenue reserve 96 77 97
------ ----------- ------ -----------
2,114 2,064 1,764
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Total Equity Shareholders'
Funds 2,123 2,074 1,774
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Basic Net Asset
Value per Ordinary
4 Share 5,544.28 5,149.09 4,405.42
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
Ordinary Shares
5 in issue 38,282,763 40,270,531 40,270,531
----- --------------------------- ------ ----------- ------ ----------- ------ -----------
The Notes on pages 39 to 46 are an integral part of the
Financial Statements.
The Financial Statements on pages 35 to 46 were approved by the
Directors on 24 May 2017 and were signed on their behalf by:
Mr Neil Johnson, Chairman
Electra Private Equity PLC
Company Number: 303062
Consolidated Cash Flow Statement (unaudited)
For the six months ended 2017 2016
31 March GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ ------ ------
Operating activities
Purchase of investments (4) (158)
Amounts paid under incentive
schemes (192) (3)
Sales of investments 1,006 360
Dividends and distributions 3 -
received
Other investment income
received 61 20
Other income received - 4
Expenses paid (23) (14)
Taxation repayment/(paid) 1 (1)
Net Cash Inflow from Operating
Activities 852 208
--------------------------------- ------ ------ ------ ------
Financing Activities
Repurchase of own shares (94) -
Dividends paid (44) (31)
Finance costs - (1)
Convertible Bond Interest
paid - (2)
---------------------------------
Net Cash Outflow from Financing
Activities (138) (34)
--------------------------------- ------ ------ ------ ------
Changes in cash and cash
equivalents 714 174
Cash and cash equivalents
at 1 October 659 147
--------------------------------- ------ ------ ------ ------
Cash and Cash Equivalents
at 31 March 1,373 321
--------------------------------- ------ ------ ------ ------
1 Accounting Policies
Within the Notes to the Half Year Report, all current and
comparative data covering periods to, or as at 31 March are
unaudited.
Basis of Accounting
The Half Year Report is unaudited and does not constitute
financial statements within the meaning of Section 434 of the
Companies Act 2006.
The statutory financial statements for the year ended 30
September 2016, which were prepared in accordance with
International Financial Reporting Standards, as endorsed by the
European Union ("IFRS") and with those parts of the Companies Act
2006 applicable to companies reporting under IFRS, have been
delivered to the Registrar of Companies. The Auditor's opinion on
those financial statements was unqualified and did not contain a
statement made under Section 498(2) or Section 498(3) of the
Companies Act 2006.
The condensed consolidated interim financial statements comprise
the Consolidated Balance Sheets as at 31 March 2017, 30 September
2016 and 31 March 2016 and for the six months ended 31 March 2017
and 31 March 2016, the related Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Consolidated
Statement of Changes in Equity, Consolidated Cashflow Statement and
the related Notes hereinafter collectively referred to as
"financial information".
The condensed consolidated interim financial statements have
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority, IAS34 and the principal
accounting policies and key estimates set out in the Annual Report
for the year ended 30 September 2016 which is available on
Electra's website (www.electraequity.com). The condensed
consolidated interim financial statements have been prepared on a
going concern basis and under the historical cost basis of
accounting, modified to include the revaluation of certain assets
at fair value.
Application of New Standards
The accounting policies used are consistent with those applied
in the last annual financial statements, as amended to reflect the
adoption of new standards, amendments, and interpretations which
became effective in the year. During the period there are no
relevant standards, amendments and interpretations that became
effective for the first time that have had a material impact on the
Company.
Additionally a number of standards have been issued but are not
yet adopted by the EU and so are not available for early adoption.
The most significant of these is IFRS 9 Financial Instruments along
with related amendments to other IFRSs and the impact on the Group
is being reviewed.
The Board has concluded that none of these standards, amendments
and interpretations is presently expected to have a significant
effect on the consolidated financial statements of the Group.
Principles of Valuation of Investments
(i) General
In valuing investments, Epiris estimates the Fair Value of each
investment at the reporting date in accordance with IFRS 13 and the
International Private Equity and Venture Capital Valuation ("IPEV")
Guidelines.
Fair Value is the price for which an asset could be exchanged
between knowledgeable, willing parties in an arm's length
transaction. In estimating Fair Value, the Manager applies a
valuation technique which is appropriate in light of the nature,
facts and circumstances of the investment and uses reasonable
current market data and inputs combined with judgement and
assumptions. Valuation techniques are applied consistently from one
reporting date to another except where a change in technique
results in a better estimate of Fair Value.
The Manager tests its valuation techniques using a tool known as
"calibration". This compares the inputs and assumptions used in
estimating Fair Value on the reporting date to those used on
previous reporting dates and to those underlying the initial entry
price of an investment in order to ensure that the inputs and
assumptions used on the reporting date are consistent with those
used previously.
In general, the Manager will: determine the enterprise value of
the investee company in question using one of a range of valuation
techniques; adjust the enterprise value for factors that would
normally be taken into account such as surplus assets, excess
liabilities or other contingencies or relevant factors; and
apportion the resulting amount between the investee company's
relevant financial instruments according to their ranking and
taking into account the effect of any instrument that may dilute
the economic entitlement of a given instrument.
Where an investment is denominated in a currency other than
Sterling, translation into Sterling is undertaken using the bid
spot rate of exchange prevailing on the reporting date.
(ii) Unlisted Investments
In respect of each unlisted investment the Manager selects one
or more of the following valuation techniques:
-- A market approach, based on the price of recent investment,
earnings multiples or industry valuation benchmarks;
-- An income approach, employing a discounted cash flow technique; and
-- A replacement cost approach valuing the net assets of the portfolio company.
In assessing whether a methodology is appropriate the Manager
maximises the use of techniques that draw heavily on observable
market-based measures of risk and return.
Price of Recent Investment
Where the investment being valued was itself made recently, its
cost may provide a good indication of Fair Value. Using the Price
of Recent Investment technique is not a default and at each
reporting date the Fair Value of recent investments is estimated to
assess whether changes or events subsequent to the relevant
transaction would imply a change in the investment's Fair
Value.
Multiple
Typically the Manager uses an earnings multiple technique. This
involves the application of an appropriate and reasonable multiple
to the maintainable earnings of an investee company.
The Manager usually derives a multiple by reference to current
market-based multiples, reflected in the market valuations of
quoted comparable companies or the price at which comparable
companies have changed ownership. Differences between these
market-based multiples and the investee company being valued are
reflected by adjusting the multiple by adding a premium or
deducting a discount for points of difference which might affect
the risk and earnings growth prospects which underpin the earnings
multiple. Such points of difference might include the relative size
and diversity of the entities, rate of earnings growth, reliance on
a small number of key employees, diversity of product ranges,
diversity and quality of customer base, level of borrowing, any
other reason the quality of earnings may differ.
In respect of maintainable earnings, the Manager usually uses
earnings for the most recent twelve-month period adjusted if
necessary to represent a reasonable estimate of maintainable
earnings. Such adjustments might include exceptional or
non-recurring items, the impact of discontinued activities and
acquisitions, or forecast material changes in earnings.
In some circumstances the Manager may apply a multiple to the
net assets of a business, typically where the business' value
derives mainly from the underlying Fair Value of its assets rather
than its earnings, such as property holding companies.
Discounted Cash Flow
The Discounted Cash Flow technique involves deriving the value
of a business or an investment by calculating the present value of
the estimated future cash flows from that business or investment
using reasonable assumptions and estimations of expected future
cash flows, the terminal value or maturity amount and date, and the
appropriate risk-adjusted rate that captures the risk inherent to
the business or investment. The Manager usually uses the Discounted
Cash Flow technique in respect of certain debt investments or where
the realisation of an investment is imminent with the pricing of
the relevant transaction being substantially agreed such that the
technique is likely to be the most appropriate one.
(iii) Listed Investments
The Fair Value of financial instruments traded in active markets
is based on quoted market prices at the reporting date. A market is
regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service or regulatory agency, and transactions for an asset take
place with sufficient frequency and volume to provide pricing
information on an on-going basis. The quoted market price used for
listed financial instruments held by the Group is the bid price on
the reporting date.
(iv) Fund Investments
In determining the Fair Value of investments in funds managed by
parties other than Epiris, the Manager usually uses the net asset
value of the fund as reported by the manager as the starting point.
The Manager may make adjustments to the reported net asset value to
reflect, for example, purchases and sales occurring between the
fund's measurement date and the reporting date, or any other facts
or circumstances which might impact the Fair Value of the fund.
(v) Accrued Income
Accrued income is included within investment valuations.
2 Segmental Analysis
The chief operating decision-maker has been identified as Epiris
Managers. Epiris Managers reviews the Group's internal reporting in
order to assess performance and allocate resources. Epiris Managers
has determined the operating segments based on these reports.
Epiris Managers considers the business as a single operating
segment.
3 Earnings per share
For the six months ended 31 March 2017 2016
------------------------------------------- ----------- -----------
Net revenue profit attributable to
ordinary shareholders (GBPm) 19 25
Net capital return attributable to
ordinary shareholders (GBPm) 169 198
----------- -----------
Total return (GBPm) 188 223
------------------------------------------- ----------- -----------
Net revenue profit on which diluted
return per share calculated with
finance charge net of taxation of
GBPnil (2016: GBPnil) added back 19 25
Net capital return on which diluted
return per share calculated (GBPm) 169 198
------------------------------------------- ----------- -----------
Total Diluted Return (GBPm) 188 223
-------------------------------------------
Weighted average number of ordinary
shares in issue during the period
on which the undiluted profit per
ordinary share was calculated 39,200,194 38,336,232
------------------------------------------- ----------- -----------
Weighted average number of ordinary
shares in issue during the period
on which the diluted profit per ordinary
share was calculated 39,200,194 40,270,531
------------------------------------------- ----------- -----------
Basic earnings Diluted earnings
per share per share
2017 2016 2017 2016
-----------------------
p p P p
----------------------- -------- ------- --------- --------
Revenue profit
per ordinary share 47.14 66.84 47.14 63.63
Capital return
per ordinary share 432.20 515.39 432.20 490.63
Earnings per ordinary
share 479.34 582.23 479.34 554.26
----------------------- -------- ------- --------- --------
4 Net Asset Value per Ordinary Share
The Net Asset Value ("NAV") per share is calculated by dividing
NAV of GBP2,122,503,000 (2016: GBP1,774,086,000) by the number of
ordinary shares in issue amounting to 38,282,763 (2016:
40,270,531).
5 Share Capital
2017 2016
As at 31 March GBPm GBPm
----------------------------------------- ----- -----
Allotted, called-up and fully paid
38,282,763 (2016: 40,270,531) ordinary
shares of 25p each 9 10
----------------------------------------- ----- -----
During the six months ended 31 March 2017, nil Subordinated
Convertible Bonds (2016: 85,369) were converted into nil ordinary
shares (2016: 4,215,593).
On the 22 December 2016 the company repurchased 1,987,768 of its
own issued ordinary shares at 4,650 pence per share. The expenses
directly relating to the acquisition of GBP1,865,000, have been
charged against realised profits, details of the share repurchase
are given in the Chairman's Statement on pages 5 and 6.
6 Related Party Transactions
Carried interest schemes
Certain members of Epiris Managers (the "participants") are
entitled to benefit from carried interest schemes under the terms
of the limited partnerships through which Electra invests. Details
of these schemes are as follows:
Long term incentive scheme ("LTI")
Under this scheme participants invested in every new investment
made by Electra between 1995 and March 2006. In return, the
participants are entitled to a percentage of the total capital and
revenue profits made on each such investment. The participants do
not receive any profit until Electra has received back its initial
investment.
The Initial Pool
This relates to a pool of investments valued at GBP160 million
at 31 March 2006 (the "initial pool"). Under this arrangement
participants are entitled to 10% (the "carried interest") of the
aggregate realised profits of the initial pool. The realised
profits are calculated as being the aggregate of income and sale
proceeds received by Electra less the GBP160 million opening value,
less any additional purchases and less priority profit share.
Carried interest is payable only once realised profits exceed a
preferred return of 15% compounded annually on the opening value of
the initial pool plus the cost of further investments less
realisations. A full catch-up is payable once the realised profits
of the initial pool exceed the preferred return. This catch-up
means that all proceeds above the cumulative preferred return
accrue to participants until they have been paid an amount equating
to 10% of the total realised profits of the initial pool.
Thereafter proceeds are split 90%:10% between Electra and the
participants.
2006, 2009 2012 and 2015 Pools
In October 2006 new arrangements were entered into in respect of
investments made over each consecutive three year period. At the
reporting date such arrangements are in operation in relation to
the three year periods from 2006 to 2009, 2009 to 2012, 2012 to
2015 and 2015 to 2018 (investments being made in each such period
being referred to as a "pool").
Under these arrangements participants are entitled to a carried
interest of 18% of the aggregate realised profits in relation to
direct investments in each pool. The realised profits are
calculated as being the aggregate of income and sale proceeds
received by Electra less the purchase costs of investments and less
priority profit share. Carried interest is payable only once
realised profits exceed a preferred return of 8% compounded
annually on the cost of investments less realisations. A full
catch-up is payable once the realised profits exceed the preferred
return. This catch-up means that all proceeds above the cumulative
preferred return accrue to participants until they have been paid
an amount equating to 18% of the total realised profits. Thereafter
proceeds are split 82%:18% between Electra and the
participants.
Similar arrangements are in place for indirect investments, the
difference from the above arrangements being that the carried
interest is 9% over an 8% preferred return.
No Directors of Electra participate in the above schemes.
Summary of carried interest pools
Initial 2006 2009 2012 2015
Pool Pool Pool Pool Pool
As at 31 March GBPm GBPm GBPm GBPm GBPm
2017
------------------------ -------- ------ ------ ------ ------
Amount invested (236) (436) (359) (785) (175)
Amount realised 687 798 834 1,368 9
Valuation of remaining
investments 5 11 36 401 195
------------------------
Pool profit 456 373 511 984 29
------------------------ -------- ------ ------ ------ ------
Multiple of cost 2.9 1.9 2.4 2.3 1.2
------------------------ -------- ------ ------ ------ ------
Priority Profit
Share (7) (32) (25) (40) (3)
Net profit 449 341 486 944 26
------------------------ -------- ------ ------ ------ ------
Initial 2006 2009 2012 2015
LTI Pool Pool Pool Pool Pool 20% Reduction Total
As at 31 March GBP'000
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- -------- -------- -------- -------------- --------
Provisional
Entitlement 9,913 439 1,933 6,528 72,109 4,739 (8,191) 87,470
Outstanding
Entitlement 647 892 48 - 151 - - 1,738
-------------- --------
Total Amount
Outstanding 10,560 1,331 1,981 6,528 72,260 4,739 (8,191) 89,208
---------------- -------- -------- -------- -------- -------- -------- -------------- --------
Amount Paid
in Period 7,100 - 6,562 80,943 97,517 - - 192,122
---------------- -------- -------- -------- -------- -------- -------- -------------- --------
Initial 2006 2009 2012 2015
LTI Pool Pool Pool Pool Pool Total
As at 31
March 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- -------- -------- -------- -------- -------- -------- --------
Provisional
Entitlement 6,569 1,435 5,984 62,014 94,868 - 170,870
Outstanding
Entitlement 6,450 73 - - - - 6,523
Total Amount
Outstanding 13,019 1,508 5,984 62,014 94,868 - 177,393
-------------- -------- -------- -------- -------- -------- -------- --------
Amount Paid
in Period 394 950 976 - - - 2,320
-------------- -------- -------- -------- -------- -------- -------- --------
Electra Partners Club 2007 LP co-investment agreement
In November 2007, Electra entered into a co-investment agreement
with Electra Partners Club 2007 LP ("Club"), a fund managed by
Epiris. The co-investment agreement required Electra to co-invest
at the ratio of 2:1 in all Epiris investments in private equity
opportunities in Western Europe where the combined investment of
Electra and the Club would represent a controlling stake and where
the combined equity investment is between GBP25 million to GBP75
million. Both parties invested on the same terms and conditions.
The agreement allowed for variations to these arrangements in
certain prescribed circumstances, for example, where investment
would compromise Electra's ability to qualify as an Investment
Trust or where the Club would exceed certain concentration ratios.
Investments that arise from interests that Electra already held
prior to the establishment of the Club are unaffected by these
sharing arrangements. These arrangements expired in May 2013.
Priority profit share
Priority profit share for the half year ended 31 March 2017 was
GBP17,087,000 (2016: GBP13,671,000).
2017 2016
Six months to March GBP'000 GBP'000
--------------------- -------- --------
Fee at 1.5% 17,068 11,082
Fee at 1% - 519
17,068 11,601
Adjustment for
deal fees net of
abort costs 19 2,070
--------------------- -------- --------
Total 17,087 13,671
--------------------- -------- --------
For the period ended 31 March 2017 priority profit share was
paid to the Manager and was calculated at 1.5% per annum on the
gross value of the Company's investment portfolio including cash
(but excluding any amounts committed to funds established and
managed by Epiris). This compares to the period ended 31 March 2016
during which the priority profit share was calculated as 1.5% per
annum on the gross value of the Company's investment portfolio
excluding cash (on which no fee was paid), Non-Core listed and
primary fund investments (on which the fee was 1.0% per annum) and
any amounts committed to funds established and managed by
Epiris.
In the period to 31 March 2017 GBPnil deal fees (2016:
GBP4,146,000) were charged by Electra in relation to new
investments. These fees are accounted for within the investment
income line in the financial statements. Under the terms of the
limited partnership agreements, Epiris Managers is entitled to
receive 50% of the aggregate deal fees in excess of abort costs.
This is achieved by increasing the priority profit share for the
period by the relevant amount. These amounts are shown in the table
above.
In addition Epiris charged portfolio companies GBP689,000 in
relation to directors and monitoring fees (2016: GBP870,000).
Termination Payment
On 26 May 2016 the Company served notice of termination of the
Management and Investment Guideline Agreement on Epiris. This
termination becomes effective on 31 May 2017. Under the terms of
their contract Epiris are entitled to an additional priority profit
share based on the priority profit share received in the year to 31
May 2017, the termination payment is GBP33,500,000 and of this,
GBP32,000,000 was accounted for in the year ended 30 September
2016. The charge for the six months to 31 March 2017 is
GBP1,500,000.
Sherborne
Sherborne Investors Management LP ("Sherborne") was appointed as
adviser to the Company on 22 December 2015. Their role was to
advise the Company in connection with research and the formulation
and making of proposals to the Board of Directors of the Company,
and, in particular the Board of Directors' Management Engagement
Committee, for the purpose of monitoring and supervising the
performance of Epiris. Under the terms of the contract Sherborne
are not entitled to a fee but are entitled to be reimbursed for all
reasonable expenses. In the six months ended 31 March 2017 the
Company paid Sherborne GBP101,000 as reimbursement for travel and
subsistence costs. Edward Bramson is a managing member of Sherborne
Investors Management LP.
Participants Investment
From October 2006 the participants in the 2006, 2009, 2012 and
2015 pools are required to invest 1% of the cost of each direct
investment on a pari passu basis with Electra. In the period ended
31 March 2017 GBP6,000 was invested (2016: GBP1,716,000). At 31
March 2017, the fair value of all investments currently held by the
participants was GBP6,496,000 (2016: GBP15,195,000).
At 31 May 2017, the Participants have the option to sell their
Participants Investments to the Company at the higher of cost or
valuation. Had this option been exercised at 31 March 2017 its
value would have been GBP7,057,000.
7 Capital Commitments and Contingencies
2017 2016
As at 31 March GBPm GBPm
------------------------------- ----- -----
Commitments to private equity
funds 50 55
Grainger Retirement Services - 45
50 100
------------------------------- ----- -----
8 Financial Instruments
The Group's activities expose it to a variety of financial
risks: market risk (including foreign currency risk, interest rate
risk and price risk), credit risk and liquidity risk.
The condensed consolidated interim financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements; they should be read in
conjunction with the Group's annual financial statements as at 30
September 2016.
There have been no changes in the risk management department or
in any risk management policies since the year end.
The unlisted financial assets held at fair value, are valued in
accordance with the Principles of Valuation of Unlisted Equity
Investments as detailed within the Basis of Accounting (Note
1).
Fair Value Hierarchy
Fair value is the amount for which an asset could be exchanged
or a liability settled between knowledgeable willing parties in an
arm's length transaction.
The Group has adopted IFRS 13 in respect of disclosures about
the degree of reliability of fair value measurements. This requires
the Group to classify, for disclosure purposes, fair value
measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements.
The levels of fair value measurement bases are defined as
follows:
Level 1: fair values measured using quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all
inputs significant to the measurement other than quoted prices
included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
Level 3: fair values measured using valuation techniques for any
input for the asset or liability significant to the measurement
that is not based on observable market data (unobservable
inputs).
The determination of what constitutes 'observable' requires
significant judgement by the Group. The Group considers observable
data to be market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary
and provided by independent sources that are actively involved in
the relevant market.
The following table represents the Group's assets by hierarchy
levels:
All fair value measurements disclosed are recurring fair value
measurements.
Financial assets and liabilities at fair value through profit or
loss
Total Level Level Level
1 2 3
As at 31 March GBPm GBPm GBPm GBPm
2017
--------------------- ------ ------ ------ ------
Unlisted and
listed investments 879 62 - 817
--------------------- ------ ------ ------ ------
879 62 - 817
--------------------- ------ ------ ------ ------
Total Level Level Level
1 2 3
As at 31 March GBPm GBPm GBPm GBPm
2016
--------------------- ------ ------ ------ ------
Unlisted and
listed investments 1,703 21 - 1,682
--------------------- ------ ------ ------ ------
1,703 21 - 1,682
--------------------- ------ ------ ------ ------
During the six month period to 31 March 2017 transfers from
Level 3 to Level 1 were GBP46,000,000 (2016: GBPnil). This relates
to the ordinary shares of Premier Asset Management PLC which were
listed on the London Stock Exchange in the period. The fair value
of Level 1 investment is determined based on quoted market
prices.
Investments whose values are based on quoted market prices in
active markets, and are therefore classified within Level 1,
include active listed equities. The Group does not adjust the
quoted price for these instruments.
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within Level 2. These include
over-the-counter derivatives.
Investments classified within Level 3 make use of significant
unobservable inputs in deriving fair value, as they trade
infrequently. As observable prices are not available for these
securities, the Group has used valuation techniques to derive the
fair value. Investments classified within Level 3 consist of
private equity direct investments and fund and secondary
positions.
The main inputs into the Group's valuation models for private
equity investments are EBITDA multiples (based on the budgeted
EBITDA or most recent EBITDA achieved or a rolling 12 months basis
of the issuer and equivalent corresponding EBITDA multiples of
comparable listed companies), quality of earnings assessments,
assessments of third party external debt, discounts, cost of
capital adjustments and probabilities of default. The Group also
considers the original transaction prices, recent transactions in
the same or similar instruments and completed third-party
transactions in comparable companies' instruments and adjusts the
model as deemed necessary.
In determining the valuation recommended to the Directors for
the Group's equity instruments, the Manager uses comparable EBITDA
multiples in arriving at the valuation for private equity. In
accordance with the Group's policy, the Manager determines
appropriate comparable public companies based on industry, size,
developmental stage, revenue generation and strategy. The Manager
then calculates an EBITDA multiple for each comparable company
identified. The multiple is calculated by dividing the enterprise
value of the comparable group by its EBITDA. The EBITDA multiple is
then adjusted for discounts/premiums with regards to such
considerations as illiquidity and other differences, advantages and
disadvantages between the Group's portfolio company and the
comparable public companies based on company specific facts and
circumstances.
The value of private equity funds is primarily based on the
latest available financial/capital account statement of the private
equity fund. The Company may make adjustments to the value as set
out in Note 23 of the Annual Report and Accounts 2016.
As at 31 March 2017 16% of financial assets at fair value
(2016:10%) comprise investments in private equity funds that have
been valued in accordance with the policies set out in Note 23 of
the Annual Report and Accounts 2016. The basis of valuation
reflects the price likely to be achievable in the secondary
market
The following table presents assets measured at fair value based
on Level 3.
2017 2016
GBPm GBPm
------------------------ -------- ------
Opening balance as
at 30 September 1,642 1,529
Purchases 4 158
Realisations (1,031) (302)
Transfer to Level (46) -
1
Increases in valuation 248 297
Closing balance as
at 31 March 817 1,682
------------------------ -------- ------
9 Dividends
A second interim dividend of GBP44,298,000 was approved and paid
during the six months ended 31 March 2017 (31 March 2016: approved
GBP31,411,000, paid GBP31,411,000).
10 Post Balance Sheet Event
A special dividend of GBP999,946,000 was paid on 5 May 2017 in
respect of the year ending 30 September 2017, amounting to 2,612p
per ordinary share.
INDEPENT REVIEW REPORT TO ELECTRA PRIVATE EQUITY PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
period from 1 October 2016 to 31 March 2017 which comprises the
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Statement of Changes in Shareholders' Equity, the
Condensed Consolidated Statement of Cash Flows and the related
Notes 1 to 10. We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
company are prepared in accordance with IFRSs as adopted by the
European Union. The condensed consolidated set of financial
statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34
"Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the set of financial statements in the
half-yearly financial report for the period from 1 October 2016 to
31 March 2017 are not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
24 May 2017
Objective and Investment Policy
Electra has been quoted on the London Stock Exchange since 1976.
Electra is managed as an HM Revenue and Customs approved investment
trust and invests primarily in the private equity mid-market.
The business and affairs of Electra are managed on an exclusive
and fully discretionary basis by Epiris, an independent private
equity fund manager with over 25 years' experience in the
mid-market.
Electra's objective is to achieve a rate of return on equity of
between 10-15% per year over the long-term by investing in a
portfolio of private equity assets.
Epiris aims to achieve this target rate of return on behalf of
Electra by utilising a flexible investment strategy and:
-- exploiting a track record of successful private equity investment;
-- utilising the proven skills of its management team with a
strong record of deal flow generation and long-term presence in the
private equity market;
-- targeting private equity opportunities (including direct
investment, fund investments and secondary buyouts of portfolios
and funds) so that the perceived risks associated with such
investments are justified by expected returns;
-- investing in a number of value creating transactions with a
balanced risk profile across a broad range of investment sectors
through a variety of financial instruments; and
-- actively managing its capital position and levels of gearing
in light of prevailing economic conditions.
The investment focus is principally on Western Europe, with the
majority of investments made in the United Kingdom where Epiris has
historically been most active. There is an emphasis on areas where
Epiris has specific knowledge and expertise. In circumstances where
Epiris feels that there is merit in gaining exposure to countries
and sectors outside its network and expertise, consideration is
given to investing in specific funds managed by third parties or
co-investing with private equity managers with whom it has
developed a relationship.
Epiris attempts to mitigate risk through portfolio
diversification. Investments will therefore be made across a broad
range of sectors and industries. At the time of investment, not
more than 15% of Electra's total assets will typically be invested
in any single investment. If Electra acquires a portfolio of
companies in a single transaction, this limitation shall be applied
individually to each of the underlying companies purchased and not
to the portfolio as a whole.
Electra has a policy to maintain total gearing below 40% of its
total assets.
Electra has a policy to return to shareholders a targeted 3% of
NAV per annum, by way of cash dividend or share buybacks. Any
shares bought back under this policy will be cancelled.
Half Year Management Report
Current and Future Development
A review of the main features of the six months to 31 March 2017
is contained in the Chairman's Statement, the Investment
Highlights, Portfolio Highlights, Portfolio Overview and Portfolio
Review which are on pages 5 and 6 and 10 to 19.
Performance
A detailed review of performance during the six months to 31
March 2017 is contained in the Investment Highlights, Portfolio
Highlights, Portfolio Overview and Portfolio Review on pages 10 to
19.
Risk Management
The role of Epiris as AIFM of the Company under the AIFMD means
that it is responsible for the risk management and ongoing process
of identifying, evaluating, monitoring and managing the risks
facing the Company in accordance with the requirements of AIFMD.
The Board keeps Epiris' performance of these responsibilities under
review as part of its overall responsibility for the Company's
internal controls and will be putting in place appropriate
alternative regulated processes as part of its transition
arrangements.
The Board and Epiris consider that the principal risks facing
the Company are Macroeconomic Risks, Foreign Currency Risks,
Transition Risk, Long-term Strategic Risks, Investment Risks,
Portfolio Diversification Risk, Valuation Risk, Operational Risk,
Gearing Risks and Cash Drag Risk as set out in the Strategic Report
of the Company's Report and Accounts for the year ended 30
September 2016 along with the risks detailed in Note 18 of the
Notes to the Financial Statements as set out in the same Report and
Accounts of the Company. The principal risks identified in the
Company's Report and Accounts for the year ended 30 September 2016
have not changed significantly since the year end.
Related Party Transactions
Details of Related Party Transactions are contained in Note 6 of
the Notes to the Accounts for the six months ended 31 March
2017.
Going Concern
The Directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the Half Year Report as
the Company has adequate resources to continue in operational
existence for the foreseeable future.
Forward Looking Statements
Certain statements in this Half Year Report are forward looking.
Although the Company believes that the expectations in these
forward looking statements are reasonable, it can give no assurance
that these expectations will prove to have been correct. Because
these statements involve risks and uncertainties, actual results
may differ materially from those expressed or implied by these
forward looking statements, The Company undertakes no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
Responsibility Statement
The Directors confirm to the best of their knowledge that:
a) the condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 as adopted by the European
Union.
b) The Half Year Management Report includes a fair review of the information required by:
(i) DTR 4.2.7 of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
(ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
By order of the Board of Directors
Neil Johnson
Chairman
24 May 2017
Information for Shareholders
Financial Calendar for 2017
Half-year Results announced May 2017
Annual Results announced December 2017
Annual General Meeting March 2018
---------------------------- --------------
Website and Electra News via Email
For further information on share prices, regulatory news and
other information, please visit www.electraequity.com.
If you would like to receive email notice of our announcements
please visit the Electra website at www.electraequity.com and click
on the "Subscribe to receive news alerts" logo on the Home page.
Registering for email alerts will not stop you receiving Annual
Reports or any other documents you have selected to receive by post
or electronically.
Shareholder Enquiries
In the event of queries regarding your ordinary shareholding,
please contact the Company's registrar, Equiniti Limited, who will
be able to assist you with:
-- registered holdings
-- balance queries
-- lost certificates
-- change of address notifications
Equiniti Limited's full details are provided on page 58 or
please visit www.equiniti.com.
If you are an existing shareholder and wish to buy more/sell
your shares in Electra:
An internet and telephone dealing service has been arranged
through Equiniti, which provides a simple way for UK shareholders
of Electra to buy or sell Electra's shares. For full details and
terms and conditions simply log onto www.shareview.co.uk/dealing or
call 0371 384 2351. Please note that lines are open 8.30am to
5.30pm (UK time) Monday to Friday (excluding UK bank holidays).
The service is only available to shareholders of Electra who
hold shares in their own name, with a UK registered address, who
are aged 18 and over.
Shareview Dealing is provided by Equiniti Financial Services
Limited. Equiniti Financial Services Limited is authorised and
regulated by the Financial Conduct Authority of 25 The North
Colonnade, Canary Wharf, London E14 5HS (FCA reference 468631).
Equiniti Financial Services Limited is registered in England and
Wales with number 6208699.
If you are not an existing shareholder:
We recommend you seek your own personal financial advice from an
appropriately qualified independent adviser or alternatively
contact your own broker. Electra Private Equity's shares are listed
on the London Stock Exchange as ELTA.
Please note. The above information is not a recommendation to
buy or sell shares. The value of shares and any income from them
can fluctuate and you may get back less than the amount invested.
If you have any doubt over what action you should take, please
contact an authorised financial adviser.
Distribution policy
In February 2015 a distribution policy was announced whereby
Electra proposes to return to shareholders a targeted 3% of NAV per
annum, by way of cash dividend or share buybacks. Any shares bought
back under this policy will be cancelled.
Special Dividend
On 24 March 2017 the Board announced a Special dividend of
GBP1.0 billion (2,612p per share), which was paid on 5 May 2017, to
shareholders on the register of members at close of business on 7
April 2017.
Please note that the Dividend Reinvestment Plan ("DRIP") option
did not apply to the Special dividend paid on 5 May 2017.
Dividend Reinvestment Plan
A Dividend Reinvestment Plan (the "Plan") has been arranged with
Equiniti, the registrar, whereby existing shareholders have the
option of reinvesting any dividend payments to buy more fully paid
ordinary shares in the Company.
For further details on the Plan please call the Equiniti
helpline on 0371 384 2351* (or +44 121 415 7047 if calling from
outside the United Kingdom).
Dividends paid/declared since the distribution policy was
revised in February 2015
Description Dividend Ex. dividend Payment
amount (pence date date
per ordinary Record
share) date
------------------- ----------------- ------------- ----------- -----------
Interim dividend 38 04/06/2015 05/06/2015 24/07/2015
2015
Final dividend 78 21/01/2016 22/01/2016 26/02/2016
2015
Interim dividend 44 12/05/2016 13/05/2016 24/06/2016
2016
Second interim 110 15/12/2016 16/12/2016 19/01/2017
dividend 2016 **
Special dividend** 2,612 06/04/2017 07/04/2017 05/05/2017
Second Special 914 08/06/2017 09/06/2017 14/07/2017
dividend**
--------------------- --------------- ------------- ----------- -----------
* Lines open 8.30am to 5.30pm (UK time), Monday to Friday, excluding UK bank holidays.
** Please note that the Dividend Reinvestment Plan ("DRIP")
option did not apply to the second interim dividend paid on 19
January 2017 or the Special dividend paid on 5 May 2017 and will
not apply to the Second Special dividend payable on 14 July
2017.
Shareholder total return performance for GBP1,000 invested
As at 31 March 2017 Five Ten Fifteen Twenty
years years years years
--------------------- --------- --------- --------- ----------
Electra share price GBP3,091 GBP3,367 GBP8,698 GBP12,340
Morningstar PE Index GBP2,665 GBP1,143 GBP2,273 GBP3,839
share price *
FTSE All-Share Index GBP1,587 GBP1,737 GBP2,625 GBP3,633
--------------------- --------- --------- --------- ----------
* The above index, prepared by Morningstar UK Limited, reflects
the performance of 21 private equity vehicles, excluding Electra,
listed on the London Stock Exchange.
Trading Information - Ordinary Shares
Listing London Stock Exchange
ISIN GB0003085445
SEDOL 0308544
Ticker/EPIC code ELTA
Bloomberg ELTALN
Reuters ELTAL
Share Fraud Warning
We are aware that in the past a number of shareholders have
received unsolicited phone calls or correspondence concerning
investment matters. These are typically from overseas based brokers
who target UK shareholders, offering to sell them what often turn
out to be worthless or high risk shares. These operations are
commonly known as Boiler Room scams.
Please be very wary of any such calls or correspondence. Ask for
the name and organisation of the person calling you and check if
they can be found on the FCA Register. If they are not listed,
please report it directly to the FCA using their consumer helpline
(0800 111 6768). You may also wish to advise us by telephoning 020
7214 4200 or emailing ir@epiris.co.uk.
It is very unlikely that either the Company or the Company's
Registrars, Equiniti, would make unsolicited telephone calls to
shareholders. Such calls would only relate to official
documentation already circulated to shareholders and never be in
respect of investment advice.
Please remember that if you use an unauthorised firm to buy or
sell shares, you will not be eligible to receive payment under the
Financial Services Compensation Scheme if things go wrong.
Other Useful Websites
LPEQ
Electra is a founder member of LPEQ, a group of private equity
investment trusts and similar vehicles listed on the London Stock
Exchange and other major European stock markets, formed to raise
awareness and increase understanding of listed private equity.
LPEQ provides information on private equity in general, and the
listed sector in particular, undertaking and publishing research
and working to improve levels of knowledge about private equity
among investors and their advisers.
For further information visit www.lpeq.com
Association of Investment Companies (AIC)
Electra is a member of the AIC, the trade organisation for
closed-ended investment companies. The AIC represents a broad range
of closed-ended investment companies, including investment trusts,
offshore investment companies and venture capital trusts which are
traded on the London Stock Exchange, Alternative Investment Market,
Special Financials Market, Euronext and the Channel Islands Stock
Exchange.
For further information visit www.theaic.co.uk
British Private Equity & Venture Capital Association
(BVCA)
Electra is a member of the BVCA, the industry body and public
policy advocate for the private equity and venture capital industry
in the UK. The BVCA's aim is to aid understanding around the
activities of its members, promote the private equity and venture
capital industry to entrepreneurs and investors as well as to
Government, the EU, trade unions, international media and the
general public. They communicate the industry's impact and
reinforce the crucial role its members play in the global economy
as a catalyst for change and growth.
For further information visit www.bvca.co.uk
Glossary
AIF
Alternative Investment Fund. Electra Private Equity PLC is an
AIF.
AIFM
Alternative Investment Fund Manager. Epiris Managers LLP is the
AIFM for Electra Private Equity PLC until 31 May 2017.
AIFMD
Alternative Investment Fund Managers Directive 2011/61/EU of the
European Parliament.
Carried Interest
The incentive arrangements, which are similar to arrangements
found elsewhere in the private equity industry, are designed to
align Epiris' interests with those of Electra's shareholders. These
arrangements are typically referred to as "carried interest".
The carried interest payable to the members of Epiris is based
on three year pools of investments. Under the terms of this
arrangement all qualifying investments in a three year period are
aggregated into a separate pool. Electra must first receive back
the aggregate cost of all the investments in the pool, plus related
priority profit share (see below) and an 8% compound return (this
is often referred to as the "hurdle"). Once Electra has received
sufficient cash to pay the amounts as described above the members
of Epiris will be entitled to a carried interest of 18% of the
profits. Consequently, they will receive the next 18/82 of the
hurdle so that they will have an amount equal to 18% of the profits
on the pool up to that point (this is referred to as a "catch up").
Thereafter, Electra and the members of Epiris will share future
cash flows in the ratio of 82:18.
Below is an example to illustrate in principle how the above
described arrangements work:
GBPm Assumptions
------------- ------ --------------------------------
Amount 500 Amount invested and priority
invested profit share
Amount 1,000 Realised after year five
realised
------------- ------ --------------------------------
Pool profit 500
Hurdle (210) 8% per annum compound
Catch up 46 18/82 of the hurdle
Balance 44 The amount over the hurdle to
get to an aggregate 18% of the
pool profit
------------- ------ --------------------------------
Total carry 90 18%
Electra 410 82%
------------- ------ --------------------------------
At 31 May 2017, when the contract with Epiris terminates, any
provision on post 2006 Pools, which is unpaid at that date and any
future uplift to it will be reduced by 20% which will revert back
to the Company.
CLO
A Collateralised Loan Obligation, or "CLO", is a securitisation
vehicle which invests in a portfolio of corporate loans and is
funded with a number of tranches of rated debt and a small
(typically around 10% of the capital structure) equity tranche. The
equity tranche benefits from the yield arbitrage between the return
on the loan portfolio and the cost of the capital structure.
Commitments
Legal obligation to provide capital for future investment in a
private equity fund or in relation to a single investment.
Discount
Investment trust shares frequently trade at a discount to NAV.
This occurs when the share price is less than the NAV. In this
circumstance, the price that a shareholder would pay or receive for
a share would be less than the value attributable to it by
reference to the underlying assets. Traditionally expressed as a
percentage.
Distributions to Paid-In Capital (DPI)
DPI, or realisation multiple, is defined by the Global
Investment Performance Standards published by the CFA Institute and
is the ratio of Distributions to Paid-In capital. It measures,
since inception, the cash received by a fund's investors relative
to the amount contributed to the fund by those investors. DPI below
and on page 8 comprises cumulative realisations net of investment
management fees (PPS and carried interest) in the numerator and
original investment cost in the denominator in respect of each
fund.
2006 Pool 2009 2012
Pool Pool
Amount distributed
(GBPm) 798 834 1,368
Notional PPS (GBPm) (32) (25) (40)
Carried interest
paid (GBPm) (59) (81) (98)
------------------------ ---------- ------ ------
707 728 1,230
Amount invested (GBPm) 436 359 785
------------------------ ---------- ------ ------
DPI 1.6x 2.0x 1.6x
------------------------ ---------- ------ ------
Earnings Multiple
This is normally referred to as a price earnings (P/E) ratio. It
is the ratio of a company's valuation compared to its earnings.
EBITDA
Earnings Before Interest, Tax, Depreciation and Amortisation.
Often used to compare the profitability of similar companies.
EBITDA Margin
EBITDA expressed as a percentage derived by dividing EBITDA by
net sales.
Epiris Managers LLP
On 5 December 2016 Electra Partners LLP announced that it had
changed its name to Epiris Managers LLP.
EV (enterprise value)
This is the aggregate value of a company's entire issued share
capital and net debt.
Gearing
This is the level of a company's debt related to its equity
capital and is usually expressed in percentage form. It shows the
extent to which a company is funded by lenders as opposed to
shareholders.
Hedging
Hedging is an investment technique designed to offset a
potential loss on one investment by purchasing a second investment
that is expected to perform in the opposite way.
Investment Return
This is the aggregate of income and capital profits and losses
from the Investment Portfolio. This is sometimes disclosed as
portfolio return. This is a common measure used by investment
companies.
IPO (initial public offering)
An offering by a company of its share capital to the public with
a view to seeking an admission of its shares to a recognised stock
exchange.
IRR (internal rate of return)
The IRR is the annualised return on an investment calculated
from the cash flows arising from that investment taking account of
the timing of each cash flow. It is derived by computing the
discount rate at which the present value of all subsequent cash
flows arising from an investment are equal to the original amount
invested. Where an IRR is stated to be net, this denotes that it
has been calculated net of investment management fees (PPS and
carried interest).
Listed Company
Any company where the shares are freely tradable and are listed
or traded on a recognised stock exchange.
LTM
Last twelve months.
NAV
This is the value of all the Company's assets minus current and
long-term liabilities. Can also be referred to as 'shareholders'
funds'.
NAV per share
This is the value of the Company's assets attributable to one
Ordinary share. It is calculated by dividing 'shareholders' funds'
by the total number of Ordinary shares in issue. This is a common
measure used by investment companies.
NAV Total Return
The total return to shareholders is the aggregate of income and
capital profits of the investment portfolio for the year less all
costs. It can be expressed as a percentage of the opening position.
This is a common measure used by investment companies.
2017 2016
---------------------------- ------ ------
NAV at 31 March (pence) 5,544 4,405
Dividends paid in the
six months ended 31 March
(pence) 110 116
---------------------------- ------ ------
5,654 4,521
Opening NAV (pence) 5,149 3,914
---------------------------- ------ ------
NAV total return 10% 15%
---------------------------- ------ ------
NAV per share at 19 May 2017
The unaudited NAV per share at 19 May 2017 was calculated on the
basis of the NAV at 31 March 2017 adjusted to reflect purchases and
sales of investments, currency movements and bid values on that day
in respect of listed investments.
Permanent Capital
An investment entity that manages capital for an unlimited time
horizon.
Priority Profit Share
This is a share of profits equivalent to a management fee. It is
calculated at 1.5% of the gross value of the Company's core
investment portfolio and 1% of the gross value of the Company's
Non-Core Listed and Primary Fund Investments, no fee is paid on
cash. Following the Board's decision to serve notice of termination
of the management agreement in May 2016, the management fee reverts
back to the structure in place prior to 1 April 2015, whereby the
Company pays the Manager 1.5% on assets held in cash (rather than
nil) and 1.5% is paid on non-core investments (rather than 1%) as
well as 1.5% on core assets.
Return on Equity (ROE)
This is the total return divided by opening shareholder funds.
Electra's ROE has been calculated by taking the percentage change
in NAV per share and adding back dividends paid per share. This is
a common measure used by investment companies.
Share Price Total Return
This is expressed as a percentage and is calculated by dividing
the sum of the closing share price and dividends paid in the year
by the opening share price. This is a common measure used by
investment companies.
2017 2016
Share price at 31 March
(pence) 4,951 3,465
Dividends paid in the
six months ended 31 March
(pence) 110 116
----------------------------- ------ ------
5,061 3,581
Opening share price (pence) 4,310 3,265
----------------------------- ------ ------
Share price total return 18% 9%
----------------------------- ------ ------
Termination Payment
On 26 May 2016 the Company served notice of termination of the
Management and Investment Guideline Agreement on Epiris. This
termination becomes effective on 31 May 2017. Under the terms of
their contract Epiris are entitled to compensation based on
priority profit share received in the year to 31 May 2017.
Total Value to Paid-In Capital (TVPI)
TVPI, or investment multiple, is defined by the Global
Investment Performance Standards published by the CFA Institute and
is the ratio of Total Value to Paid-In capital. It measures, since
inception, the aggregate of the cash received by and the residual
value attributable to a fund's investors relative to the amount
contributed to the fund by those investors. TVPI below and on page
8 comprises cumulative realisations and fair value net of
investment management fees (PPS and carried interest) in the
numerator and original investment cost in the denominator in
respect of each pool.
2006 Pool 2009 2012
Pool Pool
Amount distributed
(GBPm) 798 834 1,368
Remaining valuation
(GBPm) 11 36 401
Notional PPS (GBPm) (32) (25) (40)
Carried interest
paid and provision
(GBPm) (61) (87) (170)
------------------------ ---------- ------ ------
716 758 1,559
Amount invested (GBPm) 436 359 785
------------------------ ---------- ------ ------
TVPI 1.6x 2.1x 2.0x
------------------------ ---------- ------ ------
Unlisted Company
Any company whose shares are not listed or traded on a
recognised stock exchange.
Contact Details
Electra Private Equity PLC
Board of Directors
Neil Johnson (Chairman)
Edward Bramson
Ian Brindle
Paul Goodson
David Lis
Gavin Manson
Dr John McAdam
Roger Perkin
Linda Wilding
Chief Financial Officer
Gavin Manson
Telephone +44 (0)20 3874 8300
www.electraequity.com
Secretary
Frostrow Capital LLP
25 Southampton Buildings, London WC2A 1AL
Telephone +44 (0)20 3008 4910
Registered Office
(Registered in England: Registered No. 303062)
First Floor, 50 Grosvenor Hill, London W1K 3QT
Company Number
303062
Manager
Epiris Managers LLP
Paternoster House, 65 St Paul's Churchyard, London EC4M 8AB
Telephone +44 (0)20 7214 4200
www.epiris.co.uk
Investor Relations
Telephone +44 (0)20 3874 8300
Email info@electraequity.com
Registered Independent Auditors
Deloitte LLP
Chartered Accountants and Statutory Auditor
2 New Street Square, London EC4A 3BZ
Joint Stockbrokers
HSBC
Morgan Stanley
Depositary
Ipes Depositary (UK) Limited
9(th) Floor, No 1 Minster Court, Mincing Lane, London EC3R
7AA
Registrar and Transfer Office
Equiniti Limited
Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone (UK) 0371 384 2351 *
Textel/Hard of hearing line (UK) 0371 384 2255 *
Telephone (Overseas) +44 121 415 7047
* Lines open 8.30am to 5.30pm (UK time), Monday to Friday (excluding UK bank holidays).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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